The euro fell on Monday after the German Finance Minister said the upcoming European Union summit would not definitively solve the region's debt crisis, denting investor optimism over the talks which had earlier pushed the currency to one-month highs.
The euro was last down 0.7 percent against the dollar at $1.3781 after Germany's Wolfgang Schaeuble's comments, having risen to its highest since September 15 at $1.3914 in earlier dealing on trading platform EBS. Traders said offers ahead of $1.3930 had halted the euro's advance towards the pivotal $1.40 level in the near term. Technical resistance was at $1.3937, marked by a couple of daily highs hit in September and backed up by the 55-day moving average around $1.3952.
The euro has recovered strongly since hitting a nine-month low around $1.3145 on October 4, but its recent gains have left it vulnerable to a pullback if investors become worried EU leaders may not be able to contain the debt crisis. The dollar index briefly fell to a one-month low of 76.441 before recovering to 77.013, up 0.5 percent on the day.
The euro rallied 3.5 percent against the dollar last week after the leaders of Germany and France pledged to unveil a new package for solving the two-year crisis at the EU summit, including an agreement on how to re-capitalise banks. "Policymakers will announce a plan but there are questions about whether that plan will be credible in the market's view," said Subbarao.
Above $1.40, the euro faces resistance around $1.4076, its 200-day moving average. It has traded below this technical indicator since early September. While attendees at the G20 summit said the pace of discussions was encouraging, policymakers face resistance from banks over moves to increase private sector participation in Greek debt restructuring and to force banks to raise capital.
Underscoring the difficult issues to be addressed, Germany's Schaeuble said on Sunday that Greece's debt crisis could not be solved without larger write-downs on Greek debt. The euro fell from a five-week high of 107.67 yen to trade down 0.6 percent on the day at 106.45 yen. Earnings from US companies including Citigroup, Goldman Sachs and Apple could also affect the euro's performance, which has closely tracked investors' appetite for stocks and other risky assets.