TOKYO (AFX-ASIA) - The dollar turned top-heavy against the yen in midafternoon trade, hit by profit-taking following the sharp rebound of the local equity market, dealers said.
The US currency earlier hit an intra-session high of 125.25 yen on fundamental-led play after data released by the Ministry of Public Management, Home Affairs, Posts and Telecoms showed the unemployment rate in June remained at 4.9 pct.
The confirmation of a strong upside resistance also triggered active profit-taking on the dollar, dealers said, adding that if the unit had broken through key levels at 125.20-125.60 levels, it could have tested 126.0.
Yasuda Trust and Banking Co Ltd foreign exchange assistant manager Takashi Fujieda said the dollar may slip into a mild correction in the near-term, given the fact that "the dollar, despite all this positive news, is still hovering around such a low level".
"Besides, the pace of the rally since yesterday was too rapid," he added.
Once ongoing short-covering on the dollar by US hedge funds runs out of steam, the dollar/yen sector will return to rangebound trade ahead of the release later in the week of US labour data, dealers said.
Participants will also pay close attention to the release later today of the Conference Board Consumer Confidence Survey, which is expected to show some deterioration of consumer sentiment, they said. The euro was confined to narrow trading ranges ahead of the central council meeting of the European Central Bank on Thursday, dealers said.
However, few expect any policy change at the ECB meeting, after the release of euro-zone money supply data of 6.1 pct sparked renewed concerns over strong inflationary pressure, they said.
"The market is also beginning to be wary of emerging signs of a further slowdown of the euro-zone economy ... which, depending on developments, may hamper a steady recovery scenario," Yasuda's Fujieda said.
According to data released by the French government, the confidence among 2,000 French executives fell to its lowest level since April 1999.
"However, if the deterioration does not develop to an alarming level, the euro may rise eventually towards the 0.90 usd level," Fujieda said.
Dealers said support for the euro is now seen at 0.8720, 0.8690 and 0.8660 usd, while resistance is seen at 0.880, 0.8850 and 0.890 usd.