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

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FOREX-Euro wallows at 2-year lows as EU jitters rattle markets May 25th 2012, 00:43 Thu May 24, 2012 8:43pm EDT * EUR option barriers at $1.2500; stops at $1.2480 * Market could consolidate around $1.25 * Break of the level targets June 2010 low of $1.1876 * USD/JPY supported by importers, short-covering * Long U.S. weekend could limit volatility By Antoni Slodkowski TOKYO, May 25 (Reuters) - The euro hovered near two-year lows against the dollar on Friday, weighed down by weak German manufacturing data which showed that no European state is immune from the ongoing debt crisis which saw the currency drop nearly two percent this week. 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, the euro is poised to chalk up its heftiest weekly loss since the first week of April. The euro fetched $1.2535, gently pulling away from $1.2516, its lowest since July 2010. Against the yen, the euro recovered from a four-month trough of 99.37 yen to last stand at 99.73. "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. With the euro zone economy in dire straits and its leaders now openly talking about how to handle an exit of Greece, the common currency looked set to pierce below the nearest support at $1.2500. A break of that level would target the June 2010 low of $1.1876. For now, traders cite option barriers at $1.2500 with stop-loss orders looming around $1.2480. Real money investors and macro funds have ramped up selling of the euro, which is down by more than 5 percent in May, as concerns of a Greek exit mounted after an inconclusive election that raised the risk of its bankruptcy. Greeks are voting again on June 17, with polls showing a neck-and-neck race between parties supporting and opposing terms of the country's international bailout, keeping markets on edge. This skittshiness is well-reflected in the options market, where euro/dollar one-month at-the-money implied volatility spiked to 13.13 percent on Thursday, its highest in more than four months. It eased to last stand at 12.25 percent. The cost of protecting against a further euro decline continued to rise, to 2.6 percent, not far from multi-month peaks hit last Monday. Unexpectedly weak Ifo business climate index and manufacturing PMI data for May suggested that the growth in Europe's largest economy that had helped the euro zone dodge recession may be starting to slow. With the euro on the backfoot, the dollar has been the big winner with its index at 82.327, having jumped to 82.376, its highest since September 2010. Against the yen, the greenback inched up 0.1 percent to 79.63 yen, supported by Tokyo importers and short-covering ahead of the long weekend in the United States. Sell offers are seen around 80.00 yen, traders say. The Australian dollar inched up 0.1 percent to $0.9773 , staying above a six-month low of $0.9690 hit on Wednesday. Link this Share this Digg this Email Reprints

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