Euro falls 7th day vs dlr on political uncertainty

The euro fell for a seventh straight session against the dollar on Tuesday on worries that political uncertainty in Greece and a change of French presidents could threaten austerity plans seen as key to tackling the euro zone debt crisis.

By (Reuters)

Published: Tue 8 May 2012, 8:10 PM

Last updated: Tue 7 Apr 2015, 11:11 AM

The euro fell below the psychological level of $1.30 after the leader of Greece’s Left Coalition party said the country’s Greece’s commitment to an EU/IMF rescue deal has become null and void.

“The euro reacted to the Greece headlines, but the move lower has faded a bit because what he said was not so unexpected,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

“The euro remains extremely vulnerable to political risk and if we close below yesterday’s low of $1.2955 that would potentially shift the technicals into bear territory.”

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.

Meanwhile, 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.

The euro last traded down 0.3 percent at $1.3008 after hitting a session low of $1.2988, above a trough of $1.2955 hit on Monday, which was its weakest since late January.

Technical support for the euro is in the $1.2955/73 area, the previous session’s low and the Feb. 16 low. A break below that could send the euro to its 2012 low at around $1.2624, according to Reuters data.

“I think people are biding their time now. I don’t think you’ll see many people buying euro but they’re not aggressively selling it just yet,” said a London-based head of FX sales.

Analysts also said that some in the market were coming round to the view that a mixture of growth and austerity may be necessary to get the euro zone economy back on its feet, given the deep economic problems facing some euro zone countries that have been implementing austerity measures.

“The market will be in a wait-and-see mode and consolidating around $1.30 until we get new indications as to what direction Europe goes from here,” said Audrey Childe-Freeman, global head of currency strategy at JP Morgan Private Bank.

She said there was a risk of the euro breaking sustainably below $1.30, but said investors were not yet at the point of anticipating that Greece could precipitate a euro zone break-up.

Greece’s Left Coalition party will get a chance to form a government opposed to the country’s EU/IMF bailout, after the mainstream conservatives failed to cobble together a coalition.

“As far as markets are concerned, we’ve seen repeatedly that fiscal irresponsibility gets punished more than a lack of growth,” said Simon Grose-Hodge, head of investment advisory for South Asia at LGT Bank in Singapore.

He expected any short-covering rally in the euro over the coming month would be limited to around $1.32, adding the euro could fall to around $1.28-$1.29 in that timeframe.

The euro was down 0.4 percent against the yen at 103.88 yen, above a three-month low of 103.22 yen hit on Monday while the dollar was down 0.1 percent at 79.84 yen.

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