The euro is on track for its worst monthly slide in nearly a year, slipping back towards an eight-month low against the dollar as equities took a hit, while selling by Japanese exporters pushed it closer to a 10-year low versus the yen.
The euro relinquished modest gains made after Germany approved an expansion of the euro-zone bailout fund, pressured by a wall of orders from Japanese exporters wrapping up deals for the end of their financial first half.
It lost 0.8 percent to 103.66 yen , taking out some light stop losses below the late New York low of 103.90 yen, and shed 0.3 percent versus the dollar to $1.3549 , with some traders detecting macro funds among the sellers.
“The euro weakened as strong selling by Japanese exporters emerged, but frankly looking at the recent volatility, a dip like that is still not hugely important,” said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.
Jitters over the spiralling European debt crisis, sovereign exposure of European banks and a slowing global economy caused investors to slash their bets on risky assets in the July-September quarter, sending the common currency down almost 10 cents versus the dollar over the period.
“If anything it shows that Japan exporters don’t see the euro coming back up any time soon. The question now is what is the EU’s big, long-term solution to save it,” Ino said.
Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.
The next big hurdle will likely come when the EU tries to expand the size of the rescue fund to 2 trillion euros ($2.73 trillion) to ring-fence a potentially “managed” Greek default.
“There is still a lot of uncertainty … Economic growth in Europe and the U.S. is not that good, and that will put pressure on the euro and give a bid to the dollar,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
He expected the single currency to fall close to $1.3400 in the next couple of days.
Resistance for the euro is seen at $1.3715, a 61.8 percent retracement of its decline to $1.3360 from $1.3937 in the second half of September. Support looms at $1.3475-85, a 61.8 percent retracement of its advance to $1.3360 from $1.3690.
TIGHTEST RANGE EVER
Exporter selling sent the dollar down 0.3 percent to 76.58 yen , closer to the record low of 75.94 yen plumbed in August, but the pair was still stuck in what players said was the tightest monthly range in living memory as both the yen and the dollar have received safe-haven inflows amid recent market turmoil.
Market players took in stride comments by Japanese Finance Minister Jun Azumi, who said Japan will boost its currency intervention fund by 15 trillion yen ($195 billion) through a third extra budget for the fiscal year to next March.
With gains eked out against the euro offsetting losses sustained versus the yen, the dollar index held steady at 78.02, well-off an eight-month peak of 78.863 struck on Monday.
The New Zealand dollar fell 0.3 percent to $0.7670 and was at one point on the brink of a six-month low against the dollar after Standard & Poor’s followed Fitch Ratings in downgrading its sovereign debt by one notch.
The market took in stride HSBC’s China Purchasing Managers’ Index showing the factory sector contracted slightly for a third consecutive month in September due to weaker global demand, while factory inflation quickened to a four-month high.
Official Chinese data is to be released on Saturday.
