FOREX-Dollar, yen slide as US bank plan blurs haven allure

NEW YORK, March 23 (Reuters) - The dollar and yen fell on Monday as investors reduced safe-haven bids on both currencies after the U.S. government unveiled a plan to unlock toxic assets from banks' balance sheets in an effort to pull the economy out of recession.

Higher-yielding currencies such as the Australian and New Zealand dollars, meanwhile, gained sharply, along with soaring U.S. stocks, as Treasury Secretary Timothy Geithner outlined details of the bank rescue plan. "This is more about risk appetite with U.S. stocks up after the Geithner announcement," said Brian Kim, currency strategist at UBS in Stamford, Connecticut. "So we're seeing the euro rally against the dollar on this, along with the aussie and the kiwi" dollars.

In late afternoon trading, the euro rose 0.5 percent against the dollar to $1.3648 after trading as low as $1.3487, according to Reuters data. Earlier, the euro had risen as high as $1.3735 after European Central Bank chief Jean-Claude Trichet signaled in a newspaper interview published on Monday that the ECB remained wary of interest rates falling to zero.

That should enhance the attractiveness of euro zone instruments over those in the United States and Japan, where interest rates are already near zero. The yen, on the other hand, came under heavy selling pressure, falling to a five-month low against the euro. The single euro zone currency jumped on electronic trading platform EBS to 132.56 yen , the highest since October 2008. The euro last traded at 132.45 up 1.7 percent. Against the yen, the dollar rose 1.2 percent to 97 yen .

The low-yielding dollar and yen are viewed as safe-haven currencies with minimal volatility. When stocks plunge and the risk barometer shoots up, investors repatriate funds, closing out losing trades that were financed by low rates in both the dollar and yen. Sterling firmed, rising 0.8 percent against the dollar to $1.4574 , despite the Bank of England's recent move toward quantitative easing as the UK currency benefited from a jump in equities following the Geithner news.

Sterling also hit a 3-1/2-month-high at 141.85 yen , while the Australian dollar rose to 68.37 yen, its highest since November 2008. While the Geithner announcement was a short-term negative for the safe-haven dollar, some analysts believe the bank bailout plan would be not be as detrimental for the greenback in the long term as many market watchers had initially surmised.

Market Commentary

MARKET COMMENTARY ON 24TH MARCH 2009

GBP/USD closed higher on Monday extending this month's rally. Profit taking tempered early gains and the mid- range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, February's high crossing at 1.4940 is the next upside target. Closes below last Wednesday's low crossing at 1.3870 would confirm that a short-term top has been posted. First resistance is today's high crossing at 1.4635. Second resistance is February's high crossing at 1.4925. First support is the 20- day moving average crossing at 1.4156. Second support is last Wednesday's low crossing at 1.3870.

EUR/USD closed higher on Monday as it consolidates above the 50% retracement level of the December-March decline crossing. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the 62% retracement level of the December-March decline crossing at 1.3745 is the next upside target. Closes below the 20-day moving average crossing at 1.3140 would temper the near-term friendly outlook in the market.

USD/CHF closed higher on Monday but remains below the 50% retracement level of the December-March decline crossing. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term. If June extends this week's rally, the 62% retracement level of the December-March decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.

USD/CAD closed higher on Monday as it extended this month's rally. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the reaction high crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.

USD/JPY closed lower on Monday as it consolidated some of last Thursday's rally. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are turning neutral hinting that a short-term top might be in or is near. Closes below last Tuesday's low crossing would confirm that a short-term top has been posted. If June extends this month's rally, the reaction high crossing is the next upside target.