Reuters: US Dollar Report: FOREX-Euro falls as political risks weigh, nears 3-mth low

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FOREX-Euro falls as political risks weigh, nears 3-mth low May 9th 2012, 05:34 Wed May 9, 2012 1:34am EDT * Political uncertainty in Greece weighs on euro * Options-related demand may support euro - trader * NZ dollar, Australian dollar hit four-month lows By Masayuki Kitano SINGAPORE, May 9 (Reuters) - The euro fell close to a recent three-month low on Wednesday, on worries that political uncertainty in Greece and a French leadership change may undermine austerity plans key to tackling the euro zone's debt crisis. The euro remained under pressure after the leader of Greece's Left Coalition party said on Tuesday that the country's commitment to a European Union/International Monetary Fund rescue deal had become null and void. Greece's two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country's ability to avert bankruptcy and stay in the euro. "One issue is whether this will cause investors to shun risk globally, or be viewed as the euro's problem alone and just lead to weakness in the euro," said Koji Fukaya, director of global foreign exchange research for Credit Suisse Securities in Tokyo. Wednesday's moves suggest the political uncertainty is causing a broader retreat from risky assets. The New Zealand and Australian dollars, both sensitive to shifts in investor risk appetite, hit four-month lows versus the U.S. dollar. The euro fell 0.3 percent to $1.2971, closing in on a three-month low near $1.2955 touched on Monday. Market players say the euro could fall towards $1.28-$1.29 over the next few weeks, although its drop is expected to be gradual. An options trader said the euro may receive some support because of potential demand for euros from FX options players, related to option barriers at $1.2950 and below. The existence of such barriers means options traders might step in to buy the euro if the currency dips close to those levels. Rob Ryan, FX strategist at BNP Paribas in Singapore, said the market was short the euro both in the spot market and via options. "Much of the options plays seem to be through put spreads, meaning speculative players are long strikes in the $1.28-$1.32 area, but short strikes further down," he said. Besides the fact that the market is already short the euro, the potential for continued deleveraging and fund repatriation by European companies and financial institutions trying to strengthen their balance sheets may also support the single currency, Ryan added. EURO IN RETREAT In France, Socialist President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity. Over the past several days, there have been plenty of reasons to dump risky assets, including last week's U.S. jobs data, said a trader for a major Japanese bank in Tokyo. "There have been some risk-off moves, followed by profit taking of such bets, but now it looks a trend is starting to form, with market players trying for the downside again after taking profits," the trader said. The Australian dollar slid 0.6 percent to $1.0056, having touched a low of $1.0052 at one point, the lowest level in more than four months. The New Zealand dollar also touched a four-month low at $0.7842. The safe-haven yen rose broadly. The dollar slipped 0.2 percent to 79.74 yen. The Australian dollar fell below 80.20 yen at one point, the lowest level since January. Implied volatilities on Aussie/yen soared to a one-month high above 13 percent as market players scrambled to protect themselves against further declines in the Australian dollar. Link this Share this Digg this Email Reprints

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