* Dollar/yen falls as risk appetite wanes following Bernanke
* Fall in U.S. bond yields seen hurting greenback
* Euro/dollar stalls ahead of Europe's stress tests
* Wariness about Japan verbal intervention hampers yen
By Hideyuki Sano
TOKYO, July 22 (Reuters) - The dollar slid towards a recent
seven-month low versus the yen on Thursday after Federal Reserve
Chairman Ben Bernanke expressed concern about the U.S. economy
but steered clear of hinting about further easing as some had
hoped.
The euro, which lost sharply after his comments sparked
outflows from stocks and other risk assets, held steady at lower
levels ahead of Europe's bank stress test results on Friday.
Bernanke, in testimony prepared for delivery to the Senate
Banking Committee, said the U.S. economy faces "unusually
uncertain" prospects. []
"That 'unusually uncertain' phrase from Bernanke was very
strong, prompting investors to sell stocks and buy government
bonds," said a trader at a big Japanese bank.
"But in the forex market, investors are unable to react much
before the stress test results, the market's main focus."
Although Bernanke said the Fed was ready to take further
steps to bolster growth if needed, analysts said lack of clarity
on what measures it could take prompted investors to reduce risk
positions, benefiting the low-yielding yen across the board.
The dollar fell 0.7 percent to 86.47 yen <JPY=>, extending
losses after a 0.5 percentage point fall on Wednesday, on a
mixture of offers from Japanese exporters and hedging selling
related to some currency-linked structured notes.
Traders said the dollar could fall fast if it breaks below a
seven-month trough of 86.27 yen hit last week, with stop-loss
dollar offers believed to be waiting below that level.
A relentless drop in U.S. bond yields is also reducing the
allure of the dollar in comparison with the yen.
The two-year U.S. Treasury note yield fell to a record low
around 0.56 percent following Bernanke's comments, shrinking the
yield spread of two-year U.S bonds over Japanese government debt
to a fresh 15-month low.
Others were less convinced about the likelihood of further
falls in the dollar.
The pair's 14-day relative strength index is at 33, near the
30 mark considered to indicate an oversold market.
Yuki Sakasai, a forex strategist at Barclays Capital, said
the dollar/yen rate was unlikely to fall much below the
seven-month low for now.
"What Bernanke has said is essentially the same as the
minutes (of the Fed's June 22-23 meeting). So his comments alone
are unlikely to push the dollar/yen below recent trading ranges,"
Sakasai said.
The rise in the yen, which gained steeply on the crosses on
Wednesday, has been hampered by caution that Japanese policy
makers may try to talk it down as it nears a 14-year high around
85 yen per dollar hit last November.
Deputy Finance Minister Motohisa Ikeda said on Thursday Japan
wants to avoid excessive rises in the yen, but market reaction
was muted. []
The euro was up 0.2 percent at $1.2781 <EUR=>, winning some
reprieve after having lost nearly 1 percent on Wednesday on
Bernanke's comments and tepid demand at a Portuguese debt sale.
It has some support at its 14-day moving average around
$1.2742 and around $1.2720, a July 9 high.
The currency is likely to consolidate around the current
levels, as few traders will be eager to push it higher before the
European Union unveils the stress tests on euro zone banks.
The euro has had a good run against the dollar in recent
weeks, rising to a 10-week high above $1.30 on Tuesday as traders
began to bet most of the 91 European banks being examined would
pass the tests. []
European policy makers have expressed confidence their banks
will pass, although some analysts say investors remain sceptical
about the severity of the checks.
Major listed banks, which face constant investor scrutiny,
are expected to pass, but the tests may show the worst problems
lie with smaller players such as Spanish cajas and German
landesbanks, which are mainly unlisted. []
Euro/dollar 1-month risk reversal <EUR1MRR=ICAP>, a measure
of currency sentiment, showed a slight bias for euro puts.
Traders said that was partly reflecting some fears among
players that the euro may start falling after the euro zone bank
stress test results.
Data from broker ICAP <EURVOL=ICAP> shows euro/dlr 1-mth risk
reversal standing at 1.25/1.75%, its highest since early July.
(Additional reporting by Rika Otsuka; Editing by Michael
Watson)
