Reuters: US Dollar Report: FOREX-Euro wallows at 2-year lows as EU worries rattle markets

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FOREX-Euro wallows at 2-year lows as EU worries rattle markets May 25th 2012, 06:29 Fri May 25, 2012 2:29am EDT * EUR option barriers at $1.2500; stops at $1.2480 * Break of $1.25 targets June 2010 low of $1.1876 * USD/JPY supported by importers, short-covering * DXY at its highest since Sept 2010 * Sell-off in Asian currencies weighs on Aussie By Antoni Slodkowski TOKYO, May 25 (Reuters) - The euro wallowed at two-year lows against the dollar on Friday and was poised to end the week two percent weaker, weighed down by weak German manufacturing data and worries about a messy Greek exit from the euro zone. The risk-sensitive Australian dollar dipped 0.2 percent to $0.9741, coming close to the six-month low of $0.9690 hit on Wednesday as a sell-off in emerging market currencies picked up steam. Rattled by worries over lack of growth in the euro area, the fragile situation of the region's banking system and a potential messy Greek exit from the single currency bloc, the euro is poised to chalk up its biggest weekly loss since the first week of April. Macro funds and real money investors have ramped up selling of the currency, which is now down more than 5 percent in May, as concerns about Greece leaving the zone rose after an inconclusive election that heightened the risk of its bankruptcy. Greeks are voting again on June 17, with polls showing a close race between parties supporting and opposing terms of the its international bailout, keeping markets on tenterhooks. The euro fetched $1.2535, a stone's throw from $1.2516, its lowest level since July 2010 plumbed the day before. Against the yen, it recovered from a four-month trough of 99.37 yen to last stand at 99.90. "The pace of the euro's fall has been very quick and the market is looking for a level to consolidate around - it may well be around 1.25," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ. "U.S. markets are closed on Monday, and that too is likely to prevent traders from any excessive risk-taking," Ino said. But with the euro zone economy in dire straits and its politicians openly talking about a Greek exit, traders said that the common currency would sooner or later have to yield to the pressure and pierce the nearest support at $1.2500. A break of that level would target the June 2010 low of $1.1876 with not much in the way of technical support this side of $1.2000. For now, traders cite a formidable option barrier at $1.2500 with large stop-loss orders looming around $1.2480. DARKENING PICTURE Darkening the picture further, European Central Bank data showed 35.4 billion euros of net direct portfolio investment flowed out of the euro zone in March, as investors shunned the region's assets. Investor skittishness is well-reflected in the options market, where euro/dollar one-month at-the-money implied volatility spiked to 13.13 percent, its highest in more than four months. With the euro on the backfoot, the dollar has been the big winner with its index against a basket of major currencies edging up to 82.411, its highest since September 2010. Against the yen, the greenback was 0.1 percent higher at 79.67 yen, supported by Tokyo importers and short-covering ahead of the long weekend in the United States. Sell offers around 80.00 yen are poised to cap any further gains, traders say. The dollar muscled in on the Korean won 0.2 percent to 1,183.2 won, at one point pushing it to the lowest level since October last year, and 0.5 percent on Indonesian rupiah, pressuring it to 9,300 - the lowest level since May 2010. "The rupiah is really taking the beating today. More than repatriation by European banks, I think this is a simple 'risk off' move as investors look for safety in the dollar," said a trader for a Japanese bank. The move is reminiscent of September 2011 when emerging market positions were slashed en masse as investors lowered their exposure to the region's bonds -- an asset class that has until now been resilient to swirling global risks. Barclays Capital said in a report citing EPFR Global data that in the week to May 23, emerging markets-dedicated bond funds saw $478 million in net outflows, the first net redemptions in 19 weeks. Link this Share this Digg this Email Reprints

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