Euro falls as Italy, Greece optimism fades

The euro fell against the dollar on Monday as tentative optimism about prospects for crisis-fighting reforms under new governments in Italy and Greece gave way in the face of the huge debt problems still plaguing the eurozone. Italy sold 3 billion euros of five-year bonds at yields which, while down from last week's record market highs, were elevated enough to underscore the challenges the country's new technocratic government faces to restore market confidence, leaving many investors bearish on the single currency.
Former European Commissioner Mario Monti was appointed on Sunday to head a new government in Italy charged with implementing urgent reforms to end a crisis that has endangered the whole eurozone. The single currency was last down 0.75 percent versus the dollar at $1.3648, with gains following Italy's debt auction short-lived. It was well below a high around $1.3815 hit on EBS trading platform after a modest rally in Asian trade.
"The Italy auction was barely positive ... Participants aren't happy to hold the euro above $1.3800 and anywhere in the $1.3800-$1.3850 range is a sell". The euro earlier stalled ahead of resistance near its two-week high of around $1.3870, with offers from Asian sovereign investors cited above that. Traders cited sizeable options expiries at $1.3750, while technical support lies at the 100-week moving average around $1.3638. "When you have good news and the euro doesn't rally, you're probably going to be headed lower over the week," said Geoff Kendrick, currency strategist at Nomura in London.
After Italy's 10-year bond yield soared to levels seen as unsustainable above 7 percent last week, markets remained nervous over the consequences of more pressure on the eurozone's largest government bond market. The euro was also lower against the yen, trading down 0.9 percent at 105.09 yen, with traders citing bids above the 105.00 level. The dollar eased against the yen to 76.811, its lowest since Japan's October 31 intervention. "People are gradually realising that another round of intervention isn't going to come... and so bids look like they're gradually being shifted lower (in dollar/yen)," Nomura's Kendrick said.
Appearing to support Japan's recent currency intervention aimed at curbing excess volatility, the head of the International Monetary Fund said on Saturday the move was in line with the spirit of the G7 and G20. Traders said interventions, particularly unilateral actions such as Japan's, are unlikely to have a long-term impact and the dollar may slip on any signs of problems in the US economy. The dollar index stood at 77.383, well off last week's high of 78.165. The Australian dollar fell to $1.0215 from a session high of $1.0351.