The euro stayed weak yesterday, dipping close to two-month lows against the dollar, as the euro zone debt crisis showed little signs of abating and investors remained nervous about the risk of contagion.
Traders said Portugal and increasingly Spain were seen as potentially in need of financial help while Ireland’s belt-tightening measures came under fire for sticking to optimistic growth assumptions.
Foreign exchange trading volumes were light, however, due to the US Thanksgiving holiday.
“Things are a bit sidelined due to the US holiday but there is still a lot of nervousness about euro zone peripheral debt problems. So the euro remains a sell into rallies and not a buy on dips,” said Paul Mackel, director of currency strategy at HSBC.
European clearing house LCH.Clearnet raised the margin requirements to trade Irish government debt yesterday, citing widening spreads over triple-A euro zone benchmarks.
The cost of insuring Irish debt against default rose while Spanish and Portuguese yields pushed higher.
Rising Spanish yields have triggered speculation about whether funds available under a euro zone financial safety net would be sufficient to help such a large economy.
The euro edged up 0,1% on the day to $1,3340 after earlier hitting a low around $1.3287, just shy of the previous day’s two-month low of $1 3284. T
raders said option expiries at $1 3350 were likely to check any gains.
The next support is pegged at $1 3232, a 61,8% retracement of the August to November rally. A break of that support could test the euro’s 200-day moving average at $1 3133.
“Contagion doesn’t look to be spreading at the moment and the market is in a range for now, with no new news,” said Lauren Rosborough, currency strategist at Westpac.
She said she expected the euro would fall toward $1 3080, the 50% retracement of the rally from the May low below $1,19 to the November high above $1,42, but said some consolidation may be needed before the next push lower.
The European Commission said yesterday there were no discussions on more countries seeking aid.
The euro has fallen below support from the bottom of the cloud on the daily ichimoku chart, which stood at $1,3371, sending a major bearish signal.
The last time it fell through the cloud was in December 2009, preceding a six-month-long decline.
The euro was steady against the yen at 111,39 yen. It fell to 110,32 yen on Wednesday, a level last seen in mid-September.