Euro falls on concerns about Greece, Spain vote

LONDON: The euro fell against the dollar on Friday as wariness about disagreements on how to tackle Greece's debt and ahead of Spanish regional elections caused investors to cut back bullish euro bets before the weekend.

A weekly close below the euro's 55-day average around $1.4301 could push the euro back towards a seven-week low of $1.4048 struck on EBS trading platform earlier this week, analysts said.

The euro's losses deepened on reported sovereign selling, later followed by selling from leveraged names as spreads between German and peripheral bond yields widened.

The euro was down 0.55 percent at $1.4220, more than a cent below the day's high around $1.4345. Traders cited stop loss orders below $1.4210 and $1.4180, adding a break below there could accentuate losses.

Financial markets remained on edge over persisting concerns about the possibility of debt restructuring in Greece and were mindful of possible event risk from Spanish local elections at the weekend.

‘There are a number of headwinds ahead that favour playing the euro from the short side,’ said Jeremy Stretch, currency strategist at CIBC.

‘The positioning and/or valuation stories argue in favour of correction risks (for the euro) going into the summer’.

Positioning data shows investors have recently trimmed hefty positions in favour of the single currency, but Stretch expected more adjustment to come.

Trading may also be influenced by a large $1.4360 digital option for expiry on Monday, with euro/dollar needing to hold below that level for a payout.

‘The euro has good support and although there is talk of options at $1.4360, I think it can test resistance at $1.4425 in the near term,’ said Gavin Friend, currency analyst at nabCapital. The euro last traded near that level on May 11.

The euro has shed almost 5 percent since hitting a peak near $1.4940 in early May.

PERIPHERAL PROBLEMS

Data showing German producer prices rose strongly buoyed expectations of more European Central Bank rate hikes, though this was overshadowed by a split emerging between euro zone policymakers and politicians on how to tackle Greece's debt.

Spain's Socialist government, faces major losses to the centre-right opposition Popular Party and analysts are wary that there could be the potential for unearthing of unknown financial problems.

The euro gave up gains against the yen, to trade 0.5 pecent down on the day at 116.21 yen, although it stayed well above a recent two-month low near 113.40 yen.

The dollar recovered earlier falls to trade up 0.3 percent at 75.379 against a basket of currencies, though it stayed below its recent peak of 76.00 struck earlier this week.

‘Our preference is that the dollar index slowly sinks to 74.40, or a 1 percent drop from current levels, but technical buying will no doubt emerge there,’ said Chris Turner, head of FX strategy at ING.

The dollar was up 0.1 percent at 81.70 yen. Traders cited talk of dollar bids from Japanese retail traders near 81.30 yen, while some offers from such household investors were said to be lurking at 81.80 yen and above.

The Bank of Japan kept policy unchanged, holding interest rates steady in a zero to 0.1 percent range on Friday. But in surprise move, Deputy Governor Kiyohiko Nishimura dropped a proposal to loosen policy further.

‘If the recovery is delayed or slows we could see more action from the BOJ, but at this point it is difficult to judge,’ said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi-UFJ.