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

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FOREX-Euro dips as political risks weigh, nears 3-mth low May 9th 2012, 03:19 Tue May 8, 2012 11:19pm EDT * Political uncertainty in Greece weighs on euro * Options-related demand may support euro -trader * NZ dollar and Australian dollar hit 4-month lows By Masayuki Kitano SINGAPORE, May 9 (Reuters) - The euro fell close to a recent three-month low on Wednesday, hurt by 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 stayed under pressure after the leader of Greece's Left Coalition party said on Tuesday the country's commitment to an 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. The uncertainty weighed on currencies sensitive to shifts in investors' risk appetite, and helped drag the New Zealand dollar down to its lowest level in four months. "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. While the euro might not fall very rapidly since market players probably already have placed bearish bets on the currency, the single currency may drop to around $1.29 or $1.28 over the next few weeks, Fukaya said. The euro fell 0.3 percent to $1.2969, not very far from a three-month low near $1.2955 hit on Monday on trading platform EBS. An options trader said the euro may get some support due to potential demand for euros from FX options players, related to option barriers at $1.2950 and below. The existence of such option barriers suggests that options traders could step in to buy the euro if the currency dips close to those levels. EURO IN RETREAT The single currency has retreated this week, following elections in Greece and France. Socialist French 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. "I think the euro and the Australian dollar could fall further," he said, adding that the single currency could drop to around $1.28 by the end of May. The New Zealand dollar fell 0.4 percent to $0.7849. It fell to $0.7845 at one point, the kiwi's lowest level since early January. The Australian dollar also slipped to a four-month low, falling to $1.0060 at one point. The safe haven yen was steady to firmer. The dollar held steady at 79.85 yen. The Australian dollar dipped below 80.40 yen at one point, and fell to its 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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