Euro softens in Asia

The euro was poised to end a roller-coaster year on a downbeat note with an overnight break below crucial support levels boding ill for the year ahead, which again looks set to be dominated by the eurozone debt crisis. Over the past year the euro has lost more than 3 percent on the dollar, adding to a 6.6 percent decline in 2010. On Thursday it broke below support at this year's low and sank to a 15-month low of $1.2858. It later recovered in Asia to $1.2934.
Still, battered by the lack of a comprehensive policy response to the crisis, Italian bond yields nearing levels seen as unsustainable and the dollar-funding crunch faced by cash-starved European banks, the currency could drop as low as $1.20 by the end of 2012, analysts said.
"The euro has moved in clear waves since the Lehman crisis, so the only downside objective that makes sense for the year ahead is its 2010 low of $1.1876," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ. Against the yen, the euro softened 0.3 percent to 100.27, nearing the 10-year low around 100.01 hit overnight. Traders said that an option barrier said to be at 100 yen was saved, but got considerably thinner, thus becoming more vulnerable to attacks by speculators.
While the push to trigger stop loss offers below 100 yen failed, Japanese exporters sold the pair after the local fix, a move that prompted short-term accounts to add some pressure on other yen currency pairs, traders said. Italy's debt sales this week saw its borrowing costs ease generally, but they remained unsustainably high, especially for a country needing to raise 450 billion euros ($580 billion) through debt issuance in 2012.
Italy, the euro zone's third-largest economy, remains at the centre of the debt crisis that began in Greece two years ago and its borrowing needs could overwhelm the bloc's financial defences if it were forced to seek an international bailout. With the euro on the backfoot, the dollar index stayed close to a one-year peak of 80.854, at 80.431.
Demand to buy the US unit eased temporarily after a regional factory survey on Thursday showed the economy gained momentum as the year ended, while a separate report added to signs of a tentative recovery in the housing market. Against the yen, the dollar eased 0.1 percent to 77.52. Traders reported stop loss offers at 77.50. The Australian dollar climbed to $1.0160 from an overnight low of $1.0044. It took in its stride HSBC China PMI data that showed Chinese factory activity had shrunk again in December.