Single Currency Hovers Near 2-Year low on Greek Fears

The euro treaded water against the dollar on Monday, but hovered close to a recent two-month low as uncertainty about whether Greece will receive another tranche of financial aid to help pay off its debt kept investors cautious.

The euro is down about 1.9 percent against the dollar so far in November and has limited scope for gains even if Greece receives aid, with a bleak economic backdrop in the euro zone starkly contrasting with an improving U.S. economy.

Also favoring the safe-haven dollar against the euro is a looming U.S. “fiscal cliff,” which some believe has the potential to send the economy into another recession.

But concerns about Greece were at the forefront as euro zone governments disagreed on whether to disburse more money to debt-ravaged Greece on Monday, despite the government approving a tough 2013 budget because there is not yet a consensus on how to make its debts sustainable into the next decade.

“The key question is if the latest tranche of aid will be released in time for Greece to meet a November 16th deadline on five billion euros in debt payments,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Athens has to redeem 5 billion euros ($6.36 billion) worth of Treasury bills on Nov. 16 and had been counting on cash from the next tranche of aid to help cover that.

“While a deal later this week would likely support the euro, its overall gains should continue to be capped by mounting worries about economic malaise spreading from the bloc’s periphery into its core,” Esiner said.

Greece will get two more years to reach previously agreed budget goals but the extra will cost the euro zone an additional 32.6 billion euros, draft documents prepared for a meeting of euro zone finance ministers showed.

The European Central Bank has agreed to broaden the framework for allowing Greek banks top tap emergency loans from Greece’s central bank did not influence the euro.

The euro last traded flat at $1.2714, not far from a two-month low of $1.2688 touched on Friday, according to Reuters data. Traders cited stop loss sell orders below $1.2685 with option expiries at $1.2700 and $1.2750.

This was likely to keep the euro between $1.2690 and $1.2750.

Trade in the U.S. was on the light side, with the government bond market closed in observance of the U.S. Veterans Day holiday.

“What we are seeing in the past month has been a gradual erosion of investor confidence in the euro zone and that is starting to lead to renewed downward pressure on the euro,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ in London.

“Ultimately the situation of Greece remains unsustainable and these really are measures to kick the can down the road rather than actually dealing with the situation effectively.”

Concerns about Greece trumped data in China suggesting it is recovering from slower growth, assuaging concerns about the world’s second-largest economy.

Looking ahead, the euro will be swayed by data due later this week, which is forecast to show a slowdown in German growth in coming quarters and France slipping into recession.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell