SYDNEY: The euro came under pressure first thing in Asia on Monday, reaching 16-month lows versus the greenback and an 11-year trough on the yen following a slew of negative news from the euro zone over the weekend.
Markets were also braced 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.
The euro fell to an early low around $1.2676, before steadying at $1.2701. Against the yen, the single currency was at 97.68, having plumbed a trough at 97.47. This compared with $1.2722 and 97.95 yen late in New York on Friday.
"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."
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.
Weakness in the euro helped prop up the greenback, which edged up 0.1 percent against a basket of major currencies. The dollar index stood at 81.330.
The US dollar also rose against commodity currencies, pushing the Australian dollar to $1.0207 from $1.0229 late in New York on Friday.
But traders said Australia's retail sales data due at 0030 GMT could help underpin the Aussie if it surprised on the upside. Analysts polled by Reuters expect sales to rise 0.3 percent in November, following a 0.2 percent increase.
The greenback, however, lost ground against the yen, easing to 76.91 from 77.01 in New York.
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.
While US employment growth accelerated last month, euro zone retail sales fell and economic sentiment soured at the end of 2011, pointing to recession in the currency bloc.
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.
"Euro, especially on the crosses, is likely to remain heavy especially with the potential headline risk," said analysts at BNP Paribas.
This week will not be short on headlines from Europe as shuttle diplomacy resumes with French President Nicholas Sarkozy meeting German Chancellor Angela Merkel on Monday, and Italian Prime Minister Mario Monti heading to Berlin on Wednesday, the same day the EU monetary commissioner discusses Eurobonds.
Then, the European Central Bank holds its policy meeting on Thursday and the EU and IMF head to Greece on Saturday.
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