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Euro dives as selling snowballs
LONDON, England (Reuters) -- The euro fell against the dollar and yen to levels unseen since April on Thursday, crashing through key chart points as investors sold on the view the euro zone economy will be the laggard in a global recovery. The euro fell more than one percent on the day against both the dollar and the yen in early European trade, as the weight of selling tipped it through a big chart support point at $1.1045. By 0742 GMT the euro had fallen to $1.0986, nearly 10 cents below its record highs set in May and June. "We've broken through a technical level at $1.1045 and hit stops,'' said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. "The move is generally triggered by the same theme we've seen in recent weeks - upbeat sentiment on U.S. data and signs of a shift out of bonds into equities.'' The euro fell to 129.48 yen and hit its lowest level for over a month against the British pound at 69.33 pence. The dollar drew strength from the single currency's fall, climbing one percent on the day to 1.4047 Swiss francs, its highest for four months. But general demand for yen kept it with striking distance of the previous session's one-month low of 117.79 yen. HEAD OF STEAMTraders said pressure on the euro was coming largely from the yen, with selling of euros for yen cited as a popular trade for those expecting global upturn in recent weeks, especially after recent data showing the three biggest euro zone economies contracted in the second quarter. The Nikkei stock index climbed to its highest for a year on Thursday while government data showed foreign investors poured funds into Japanese shares for the 18th straight week, buying into the view the world's second-largest economy was showing signs of revival. Ministry of Finance weekly capital flows showed foreign investors boosted their net purchases of Japanese equities five-fold last week to 450 billion yen from 91 billion yen the previous week. "The popular trade at the start of the year was to go long euro zone government debt unhedged,'' said Steven Pearson, chief currency strategist at HBOS Trreasury Services. "In an environment of a global economic upswing this is the wrong trade to have and we are seeing an outflow of capital.'' Japanese investors were net sellers of foreign bonds to the tune of 521 billion yen in the week of August 11-15 after being net buyers of 532.6 billion yen a week earlier. They were also net sellers of 17.4 billion yen of foreign stocks. In addition, analysts said the euro was bearing the brunt of yen buying as few in the market wanted to challenge the determination of Japanese authorities to keep their currency from gaining against the dollar. "...Japanese authorities do not have too much history of intervening in euro/yen,'' said Noriyuki Kato, foreign exchange manager at State Street Bank in Tokyo. Traders said the market would keep a close eye on U.S. economic indicators due later, especially the Philadelphia Federal Reserve Bank survey, with the focus on whether the run of relatively upbeat data in recent weeks would be extended. Thursday's diary also includes weekly jobless claims data, but some economists said these could be distorted by a power outage that hit vast areas of the eastern United States and Canada last week.
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