LONDON: As the financial crisis afflicting the euro zone deepens, the euro should remain on a downward trajectory against the dollar with a chance it heads to the $1.1875 June 2010 low in coming weeks.
Orders to sell the euro were said to be building on Monday, perhaps more in hope than expectation, at the $1.2140-50 level, but sights may have to be lowered.
Stop loss sell orders, for those still holding euros, and stop entry sell orders, for those wishing to initiate or add to a short euro position on the basis that the single currency may head even lower, are said to lie below $1.2070 and $1.2045.
Those levels may prove magnetic and could trigger an acceleration in the euro's slide.
The catalyst for Monday's renewed euro depreciation against the dollar is a perceived deterioration in the economic and financial prospects for both Spain and Greece.
Spain's economy was already set to contract in both 2012 and 2013 even before some Spanish regions were said to be seeking financial support.
Valencia's request on Friday was followed by Murcia on Sunday. Media have reported Catalonia, Castilla La Mancha, Andalucia, the Balearics and the Canary Islands may follow suit.
The bond market delivered its verdict on Monday with Spanish 10-year government bonds hitting a euro-era high of 7.55 percent with even the two-year yield rising to 6.42 percent.
With yields rising along the entire Spanish government curve, the Madrid authorities are in an unenviable position.
The financial position is clearly not sustainable given the economy is already contracting and the government expects unemployment to be 24.6 percent jobless rate in 2012.
With Spain in such dire straits, the pressure on the euro can only increase.
Nor is the bond yield pain limited to Spain. Italian yields rose too on Monday, with the 10-year hitting 6.37 percent.
All this comes on top of a German media report on Sunday, citing high-ranking representatives in Brussels, that the International Monetary Fund may not take part in any additional financing for Greece.
The clear evidence of a deteriorating situation in the euro zone periphery should only mean a further slide in the euro's value against the dollar.
Comments
Comments are closed for this article.