The euro fell to a 10-year low against the yen and its lowest in more than 15 months versus the dollar on Thursday after high borrowing costs at an Italian bond sale fuelled investor concerns about the eurozone crisis. Italy sold 7.02 billion euros of three- and 10-year bonds. Yields were lower than at previous sales but cautious investors still demanded a near 7 percent yield to buy 10-year paper, a level seen unsustainable.
The euro hit a trough of $1.2858 against the dollar, its weakest since September 2010, after triggering reported stop loss orders below $1.2880. Trading was thin, however, with individual orders exaggerating moves. Analysts said that with the euro having broken decisively below $1.30, this level would act as technical resistance, with many expecting a move towards $1.25 in the coming months.
"The euro remains biased towards the downside, not just from a debt crisis perspective, but also from a fundamental perspective, with the European Central Bank expected to move towards more aggressive quantitative easing," said Audrey Childe-Freeman, EMEA head of currency strategy at J.P. Morgan Private Bank.
"The Italian auction result was not a disaster, yields were lower but the bid-to-covers were a bit weaker, so it's certainly not an all-clear on the debt crisis." Against the yen, the euro hit a 10-year low of 100.05 yen on the EBS trading platform, driven by selling from Japanese retail investors and exporters, with moves amplified in poor year-end liquidity.
There was market talk of an option barrier at 100.00 yen, suggesting the euro could draw support from demand from options players just above there. However, its falls may gain momentum if that level is breached, with one trader saying there were large stop-loss euro offers at 100.00 yen. Analysts said the euro was likely to stay vulnerable to further falls as the debt crisis in the region remains acute. "The trend is still there for a weaker euro," said Carl Hammer, currency strategist at SEB in Stockholm, adding SEB sees the euro at $1.25 by the end of the first quarter of 2012. The euro's drop helped lift the dollar to 80.854 versus a basket of currencies, its highest level since January. The greenback eased 0.1 percent to 77.83 yen.