FOREX-Euro hits 2-week low, vulnerable to Spain worries

by on September 26, 2012 8:30 am GMT

Wed Sep 26, 2012 4:30am EDT

* Uncertainty over Spanish bailout request unnerves market

* Violent protests in Madrid weigh on single currency

* Strong support for euro expected around $1.2826

By Nia Williams

LONDON, Sept 26 (Reuters) – The euro hit a two-week low
against the dollar on Wednesday, dragged down by uncertainty
over when Spain might request a bailout, and after
anti-government protests in Madrid turned violent.

A Spanish request for external aid is a condition for the
European Central Bank to start buying Spanish debt and Madrid’s
apparent reluctance to seek help has dented demand for the euro
in recent sessions.

Spanish Prime Minister Mariano Rajoy told the Wall Street
Journal in an interview published on Wednesday that he was ready
to seek a bailout if its debt financing costs stayed too high
for too long.

The euro fell further after the Bank of Spain said
gross domestic product kept falling at a “significant rate” in
the third quarter of 2012.

It traded down 0.4 percent at $1.2848, its lowest since
Sept. 12, having hit a four-month high of $1.31729 last week.

“The Spanish story does seem to be deteriorating. We are
seeing Spanish bond yields pushing higher this morning and
that’s being echoed by a slightly lower euro,” said Daragh
Maher, currency strategist HSBC.

Protesters clashed with police in Madrid on Tuesday as the
government prepared a new round of austerity measures for the
2013 budget, due on Thursday.

The unrest highlighted the challenges facing the euro zone’s
fourth largest economy as it struggles to bring its debt under
control, and pushed 10-year Spanish yields back towards 6

Strategists said profit-taking was also weighing on the
single currency. The euro had rallied around 9 percent from a
two-year low of $1.2042 hit in July, helped by the ECB
bond-buying plan and a third round of monetary easing from the
U.S. Federal Reserve that lifted perceived riskier currencies
against the dollar.

“What we’re seeing is a reversal of some excessive moves
that we saw earlier,” said Satoshi Okagawa, senior global
markets analyst for Sumitomo Mitsui Banking Corporation in

HSBC’s Maher said a break below $1.28, which acted as
resistance as the euro rallied earlier this month, could open
the door for further losses. The 200-day moving average at
$1.2826 was also seen as strong support.

The risk of further unrest in Greece, where the coalition
faced its first big anti-austerity strike since taking power in
June, was also contributing to negative sentiment towards the


The euro fell 0.6 percent to 99.71 yen, having
retreated from a session high of 100.46 yen.

The single currency’s retreat helped lift the yen against
the dollar. The greenback eased 0.2 percent to a near two-week
77.60 yen, not far from a seven-month low of 77.13 yen
hit on Sept. 13, the day the Fed announced aggressive stimulus
to promote economic recovery.

Yuji Saito, director of foreign exchange at Credit Agricole
in Tokyo said the dollar should be supported by hefty bids
around the 77.50 yen level.

Traders said the yen could get a lift this week from
Japanese fund repatriation before half-year book-closings,
although some market participants said many companies had
already covered their needs so such flows were unlikely to be

The Australian dollar dipped 0.3 percent to
US$1.0350, tracking the broader pull-back in investor appetite
to take on risk.