Euro hits record low on Greek debt worries

NEW YORK: The euro fell to a record low against the Swiss franc on Wednesday on uncertainty over Greece's debt crisis, which could keep the single currency under heavy pressure in the near term.

The euro, however, stabilized against the dollar in late morning trade after clearing house LCH. Clearnet raised the additional margin required on Irish government bonds. Analysts said the increase will require more euro buying in the short-term and triggered some short covering.

Analysts still expect the euro to fall below key support around $1.40 in the next few days. That would open the door to further selling toward $1.35, unless policymakers can come up with credible solutions to soothe investors' fears about any potential restructuring of Greek debt.

Investors expect Athens, which is digging its way out of massive debts, to have difficulty implementing more austerity measures as the government's main opposition party opposes such a move.

"The focus right now is on whether Greece will follow through on agreed upon austerity measures amidst widespread local dissent," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

"The growing consensus of an eventual technical default by Greece is contributing to uncertainty, which is increasingly undermining the euro," he added.

Greece's prime minister called again for consensus at a meeting with the country's president on Wednesday. Athens wants to secure continued funding under a 110 billion euro ($155 billion) bailout while paymasters at the European Union press for wider political support before they agree on further loans to plug a funding gap next year.

A government spokesman said Greece has no immediate plans to hold a referendum on austerity measures, quashing earlier speculation of a possible vote.

The euro fell to a session low of $1.4011 on trading platform EBS, not far from a two-month low of $1.3968 set on Monday. It last traded flat at $1.4101.

The single currency had pared losses after Finland approved an EU/IMF bailout for Portugal, while demand from hedge funds also prompted a squeeze in euro short positions.

Offers from sovereign investors could start appearing around $1.4100, which will limit euro upside. Further resistance is seen around $1.4195, traders said.

Against the Swiss franc, the euro fell to 1.2270 francs on EBS, the weakest since the single currency was launched in 1999. It last traded down 0.9 percent at 1.2298.

EURO DOWNSIDE

Citigroup said in a note that its index on hedge fund positioning showed these investors had unwound long bets on the euro in the past few weeks but they were still in "overextended territory," implying further losses for the euro.

Support lies around the psychologically important level of $1.4000, which also marks the 200-week moving average. Analysts said the euro could break that level later this week, when interest to defend options around that region evaporates.

Below that, the euro/dollar could find support near $1.3985, the 100-day moving average, before sliding toward the $1.3770 area, the 38.2 percent Fibonacci retracement of the euro's rise from June 2010 to May 2011.

Steven Englander, head of G10 FX strategy at Citigroup in New York, said it is "increasingly difficult" to see how things will hold together to resolve the sovereign borrowing issues.

"The euro at $1.40 is expensive given these pressures. However, it more likely faces a grind lower rather than a cliff jump," he said.

The dollar rose 0.1 percent against the yen to 81.96 yen.

The dollar had a limited reaction to data showing new orders for long-lasting US manufactured goods recorded their largest decline in six months in April.

Copyright Reuters, 2011