NEW YORK: The euro hit a near nine-month low against the dollar on Tuesday after European finance ministers debated making banks take bigger losses on Greek debt and delayed a vital aid payment to Athens until mid-November.
The single currency fell to $1.3145, its weakest since January as a slide in stocks and a collapse in the shares of Franco-Belgian banking group Dexia -- which has hefty exposure to Greek debt -- pushed investors into the safety of the world's most liquid currency.
Investors see a growing possibility of a default in Athens as euro zone finance ministers look to force banks to take bigger losses on their Greek debt holdings, while the next aid tranche for the country has been delayed until mid-November.
The euro erased its losses to trade 0.2 percent higher on the day at $1.3198 on electronic trading platform EBS, but traders and analysts said the move is no more than a technical bounce with more losses ahead.
"It's a bounce before the next move lower," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "There is the ongoing saga in Europe with no clear leadership. meeting after meeting with no new concrete measures and mounting questions of if Greece gets the new tranche and can make its next payments and avoid default."
Market participants said an option with a strike price of $1.32 was expiring later in the day, which may anchor the single currency in the very near term. Stronger demand was located around large $1.3100 barriers.
Technical traders said the outlook for the common currency had turned increasingly negative after a bearish cross on the 50- and 200-day moving averages, while support was seen at $1.3040, a 61.8 percent retracement of the rally from June 2010 to in May 2011.
Ian Stannard, currency strategist at Morgan Stanley. anticipated more weakness for the euro, particularly given the European Central Bank may signal it will ease monetary policy to support the euro zone economy through the debt storm.
The ECB meets on Thursday.
Commonwealth Foreign Exchange's Esiner said if $1.3150 fails to hold, next support is around $1.3050.
The euro also fell to its lowest since at least 2004 on EBS at 100.77 yen before recovering to trade with gains of 0.4 percent at 101.304.
Some analysts said extreme short positioning for the euro could limit scope for significant falls in the near term. The dollar was a big beneficiary of the euro's weakness, touching a six-month high versus the Swiss franc.
The greenback was little changed against the yen at 76.68 yen.
AUSSIE HIT
The Australian dollar hit a one-year low of US$0.9410, down around 15 percent from the post float high it touched in July, as an increasing number of investors start to worry about Chinese growth. The aussie was floated in 1983.
The commodities-driven Australian currency extended losses after the country's central bank opened the door to possible monetary easing as early as next month if upcoming inflation data proves benign.
From a technical standpoint, it also looks prone to more selling given a "death cross" of the 50-day moving average under the 200-day average, the first such formation in more than a year.
Traders cited decent bids around US$0.9400, which could offer short-term support, but Commonwealth Bank of Australia expects the Aussie to fall below 90 US cents in the next month or so.
The Canadian dollar also slipped against the US dollar to a one-year low.
As concerns about a global economic downturn escalate, investors awaited testimony later in the day from Federal Reserve Chairman Ben Bernanke, who will speak on the economic outlook. Many in the market expect bearish prospects for the already sluggish US economy would weigh on risky assets.
Copyright Reuters, 2011
Comments
Comments are closed.