Euro hits 16-month low vs dollar, 11-year low vs yen

SINGAPORE: The euro hit a 16-month low versus the dollar on Monday, hurt by negative news from the euro zone over the weekend, with the risks of further declines seen in coming months.

The euro hit its lowest level since September 2010 of $1.2666 on trading platform EBS at one point. Against the yen, the euro hit an 11-year low of 97.28 yen, its lowest level since December 2000.

The single currency later trimmed some of its losses and last stood at $1.2710, down 0.1 percent from late US trading on Friday and was changing hands at around 97.80 yen, down 0.1 percent.

"We have revised down our 3-month EUR/USD forecast to 1.25 and during the initial quarter of this year do not expect investors to stray far from their long USD positions," Jane Foley, senior FX strategist at Rabobank, wrote in a client note.

"Insofar as 2012 has opened to a chorus of concerns as to whether EMU can even stay the course this year, we expect investors to continue hunting diversification trades. EUR/JPY, EUR/AUD and EUR/CAD are all likely to see further downside in Q1."

One support area for the euro lies near $1.2600, roughly the 76.4 percent retracement of its June 2010 to May 2011 rally.

US jobs data released last Friday highlighted the diverging growth outlook between the United States and Europe, suggesting further weakness in the euro/dollar pair.

The newsflow from Europe over the weekend was also far from inspiring. German magazine Der Spiegel reported on Saturday the International Monetary Fund was losing confidence in Greece's ability to clean up its public finances and work off its mountain of debt.

In addition, an adviser to Germany's finance minister Wolfgang Schaeuble told a Greek newspaper that a 50 percent write-down on Greek debt holdings, part of Greece's debt swap deal, was not enough to put the country's huge debt on a viable footing.

Some market players said stop-loss offers exacerbated the euro's drop on Monday.

Underscoring the bearish view on the euro, currency speculators boosted short positions in the currency to record levels in the week ended Jan. 3, data from the Commodity Futures Trading Commission showed on Friday.

Markets are bracing for debt sales from Spain and Italy on Thursday and Friday, seen as a major test of investor willingness to plough more money into the region's troubled countries following recent steps to address their debt problems.

EURO CROSSES

After having finished 2011 some 13 percent below its 2011 high near $1.4940, the euro has started 2012 on a weak note, having shed roughly 1.9 percent so far in January.

The euro's drop so far in 2012 has been driven by selling in euro crosses such as euro/Aussie and euro/yen as well as euro/Asia, said Rob Ryan, FX strategist for BNP Paribas in Singapore.

"Positioning is beginning to get a little stretched at this stage," Ryan said. "I think we're risking some pretty fast reversals of these moves."

Still, the single currency is unlikely to see a sustained rebound unless the euro zone's economic outlook improves, Ryan said, adding that the euro could fall to $1.25 in coming months.

"We need to see the (euro zone's) economic data halt its slide and I think we need to see banks start to lend to each other. Neither of those are going to happen overnight," he said.

Market players are worried that euro zone countries will have a hard time making progress on fiscal consolidation unless the region's economic outlook improves.

The euro did manage to regain some ground versus the Australian dollar, rising 0.5 percent to A$1.2489 and pulling away from a record low of A$1.2408 hit last week.

Weaker-than-expected Australia retail sales weighed on the Australian dollar and gave an added boost to the euro/Aussie cross.

Against the greenback, the Australian dollar fell 0.6 percent to $1.0172.

Australian retail sales were flat in November, disappointing hopes that lower interest rates would give a boost to demand and adding to the case for a further cut next month.

The dollar held steady against the yen at 76.94 yen , staying above a two-month low of 76.30 yen hit last week.

Copyright Reuters, 2012