The euro fell on Monday, trading close to recent lows as a delay to the next tranche of Greek bailout funds undermined confidence in the single currency, with the options market and technical charts pointing to more losses. Eurozone finance ministers said they expected 12 billion euros in emergency loans to Greece to be paid by mid-July, but the disbursement would depend on the Greek parliament first approving new austerity measures.
Traders and analysts said uncertainty over the Greek crisis left investors inclined to sell the euro on any rallies. "There is still very little confidence out there and too much political risk and it is quite likely the market is looking for the downside in euro/dollar," said Lena Komileva, global head of G10 currency strategy at Brown Brothers Harriman.
However, she said for now markets believed euro zone countries would reach an agreement that would keep the Greek crisis temporarily contained and she expected this would hold the euro in a range between $1.40 and $1.45. The euro was down 0.7 percent against the dollar at $1.4214, in sight of a three-week low of $1.4073 hit on Thursday on trading platform EBS. A move below there would target the 200-week moving average around $1.4015.
The euro's losses picked up steam earlier in the session after stop-loss offers were triggered near $1.4250. However, it came off a session low of $1.4191 on a bout of short covering. Traders said large options expiries at $1.4200 reportedly due on Monday could keep the euro hovering around that level.
Below the psychological $1.4000 level, the next target would be the May 23 low of $1.3968. Market players said they expected European authorities to ultimately extend the emergency loans that Greece needs by mid-July to avoid defaulting on its debt. Still, the current impasse and bickering between policymakers has driven up the cost of insuring Greek debt against default and increased the risk of investors losing confidence in other vulnerable eurozone debtors.
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. High-yielding currencies fell sharply, with the Australian dollar losing more than 1 percent to $1.0496. The New Zealand dollar was also down 0.9 percent at $0.8052. The dollar index, which tracks the greenback's performance against a basket of major currencies, was up 0.5 percent at 75.39. The dollar was up 0.2 percent against the yen at 80.22 yen with traders citing talk of exporter selling interest above 80.50 yen.