Euro drops versus franc

The euro slid against the safe-haven Swiss franc on Monday and could fall further if investors continue to shun risk on fears that Greece may not receive another round of financial aid and end up defaulting on its debt. Euro zone finance ministers gave Greece two weeks from Monday to approve further spending cuts and tax rises in exchange for another 12 billion euros in emergency loans, piling pressure on Athens to get its ragged finances in order.
After two days of crisis talks, the ministers effectively issued Athens an ultimatum. The euro hit a session low of 1.2015 francs, according to Reuters data, before paring losses to trade down 0.3 percent at 1.2102 francs late in the day. The dollar also rebounded from a low of 0.8403 francs and stood at 0.8464 francs late in the day, down 0.3 percent.
"The strength of the franc shows investors are very nervous right now and are skeptical about Greece getting aid," said Kathy Lien, director of currency research at GFT Forex in New York. "If they were truly optimistic we would not see the franc continue to remain strong.
The euro was little changed against the dollar, recovering from losses that took it as low as $1.41910, well above a three-week low of $1.40730 hit on Thursday on trading platform EBS. It was last at $1.43020. Traders said a move in the euro below $1.40730 would target the 200-week moving average around $1.40150. A comment by Klaus Regling, chief of the European Financial Stability Facility, that the fund's guarantees will be raised to 780 billion euros from 440 billion, did lift the euro a bit, especially against the dollar and yen. See.
The euro earlier hit session highs at $1.43280 in the wake of comments from Regling. There was also a sense of optimism in the market that the Greek parliament will likely pass the austerity plan and that Greece's prime minister, George Papandreou, will win a parliamentary vote of confidence in the new cabinet on Tuesday. "An approval will likely be a near-term positive for the euro, but the broader picture is one where policymakers continue to kick the can down the road," Esiner said.
In addition, the reaction of Greek citizens in the streets could raise doubts about the implementation of austerity measures, he said, and drive down the euro. Risk reversals on euro/dollar options, which show strong demand for bets on the euro falling compared with bets on it rising, demonstrated the negative view investors have on the shared currency. One-month risk reversals were trading around 2.7 percent in favour of euro puts, hovering near their highest level since the eurozone's debt problems reached crisis point in May-June 2010, according to data from interdealer broker ICAP.