FOREX-Euro up from near 1-month lows; ZEW eyed

LONDON, April 21 (Reuters) - The euro rose on Tuesday after hitting one-month lows against the dollar and yen as investors took profits, although nervousness about corporate earnings announcements and the health of banks kept gains in check.

The yen crosses and commodities currencies have taken the brunt of the impact from a steep slide in U.S. equities after Bank of America (BAC.N) reported a jump in non-performing assets, underscoring the banking sector's troubles.

The Japanese currency hit its highest since mid-March against the euro and a three-week peak against the British pound as the bank sector concerns tempered risk appetite and triggered buying back of yen.

It later retreated after its gains cleared out near-term sell orders for its rivals, helping the euro, sterling and the Australian dollar to recover some ground against the dollar as well, but that is likely to prove short-lived, analysts say.

"The recent correction will likely continue and we may see euro and cable and Aussie dollar pull lower in the next couple of days," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.

By 0753 GMT, the euro rose 0.2 percent against the dollar to $1.2947 , but was not far from a one-month low of $1.2888 hit on trading platform EBS on Monday.

The euro was up 0.2 percent at 126.77 yen after hitting a low of 126.10 yen on EBS.

The dollar was flat at 97.94 yen , up from a three-week low of 97.66 yen hit on Monday.

Data on Tuesday is expected to show German investor sentiment rose into positive territory for the first time in roughly two years. The ZEW think tank's economic sentiment index is forecast to rise to 1.5 in March from -3.5 the previous month.

Yen Weakens, Snaps 3-Day Gain, as Trade Deficit May Damp Demand

April 21 (Bloomberg) -- The yen declined for the first time in four days against the euro and the dollar before a government report tomorrow that may show Japan posted a trade deficit last month, damping the currency’s appeal.

Japan’s currency fell from a five-week high versus the euro as technical indicators showed recent gains were excessive. The euro climbed from the lowest in a month against the dollar on speculation a German report today will show investor confidence turned positive for the first time in two years. South Korea’s won slid the most in two weeks as widening U.S. credit losses tempered demand for emerging-market assets.

“The Japanese economy is in a terrible way and people are very pessimistic,” said Sean Callow, senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest bank by market value. “If we get much further deterioration in the trade position, it should be a yen negative.”

The yen dropped to 127.38 per euro as of 6:15 a.m. in London from 126.48 in New York yesterday. It gained 3 percent against the euro in the past week and earlier reached 126.09, the strongest level since March 16. Japan’s currency declined to 98.37 per dollar from 97.89, and weakened to 69.11 against Australia’s dollar from 68.20.

The greenback traded at $1.2952 per euro from $1.2921 yesterday, when it reached $1.2889, the highest level since March 16. The won fell 1.2 percent, the most since April 8, to 1,350.25 per dollar.

Trade Deficit

The yen weakened against 15 of the 16 most-traded currencies before Japan’s finance ministry releases its trade report in Tokyo tomorrow. The nation had a trade deficit of 27 billion yen ($275 million) in March, the fifth shortfall in six months, according to a Bloomberg News survey of economists.

The yen fell from a five-week high versus the euro as the European currency’s 14-day stochastic oscillator against Japan’s dropped to 11 today, below the 20 level that signals the euro may have fallen too quickly and is poised to strengthen.

“There’s a sense the yen has been overbought,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “Market participants are probably unwinding long yen positions.” A long position is a bet an asset will gain.

Market Commentary

MARKET COMMENTARY ON 21ST APRIL 2009

GBP/USD closed lower on Monday as it extends the decline off March's high. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain bearish signalling that sideways to lower prices are possible near-term. If it extends today's decline, the reaction low crossing is the next downside target. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted.

EUR/USD closed lower on Monday as it extends the decline off March's high. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain bearish signalling that sideways to lower prices are possible near-term. If it extends today's decline, the reaction low crossing is the next downside target. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted.

USD/CHF closed sharply lower on Friday and below the previous reaction low crossing. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are diverging but are bearish signalling that sideways to lower prices are possible near-term. If it extends today's decline, March's low crossing is the next downside target. Closes above the reaction high crossing would confirm that a short-term low has been posted.

USD/JPY closed higher due to short covering on Monday as it consolidated some of this month's decline. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI remain neutral to bullish signalling that sideways to higher prices are possible near-term. Closes above the 20-day moving average crossing would temper the near-term bearish outlook. If it extends this month's decline, the 75% retracement level of last fall's rally crossing is the next downside target.