The Dollar and Yen fall as U.S government steps send investors to the Euro

The yen fell to a five-month low against the euro and the dollar weakened on speculation additional U.S. government steps to help banks dispose of toxic assets will spur demand for higher-yielding currencies. The Obama administration will today outline regulatory changes aimed at avoiding a repeat of the financial crisis that’s crippled the U.S. banking system. Geithner and Federal Reserve Chairman Ben S. Bernanke will testify at the House Financial Services Committee tomorrow on the government’s rescue of American International Group Inc. “The launch of a so-called bad bank plan should brighten prospects for riskier assets such as currencies of emerging markets,” said Masashi Hashimoto, a Tokyo-based foreign- exchange analyst at Bank of Tokyo-Mitsubishi UFJ Ltd “The yen and dollar may weaken.” The EUR/USD is currently trading at $1.3692 as of 8:38am, GMT.

The euro may strengthen 10 percent to the 52-week moving average of 144.15 yen after rising above so-called resistance between 130.81 and 131.05, Bank of Tokyo- Mitsubishi UFJ Ltd. said, citing trading patterns. Fibonacci analysis uses a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching highs or lows. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Other Fibonacci points include 61.8 percent. The EUR/JPY is currently trading at 131.48 as of 8:55am, GMT.

Currency performance may not be driven by which nations are buying government bonds to boost the economy, according to Royal Bank of Scotland Group Plc. “The market has made a big deal over those that have recently added buying government bonds to the mix; the U.K., U.S. and Japan all now buy government bonds,” Greg Gibbs, a foreign-exchange strategist in Sydney at the bank, wrote in a report today. “It is arguable that this is not all that big a distinction. We have to be cautious thus running the argument that one of these currencies should outperform another based on who is or is not quantitatively easing.”

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