FOREX-Euro stuck near 2-week low, focus on Spain’s woes

by on September 27, 2012 2:56 am GMT

Wed Sep 26, 2012 10:56pm EDT

* Protests in Spain, Greece weigh on euro

* Euro hovers near 2-week lows vs dollar and yen

* Support for euro seen at 200-day MA near $1.2826

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, Sept 27 (Reuters) – The euro held steady
versus the dollar on Thursday, hovering hovered near a two-week
low, as violent protests against austerity measures in Spain and
Greece highlighted the challenges facing highly-indebted euro
zone countries.

The single currency held steady at $1.2878, not far
from a two-week low of $1.2835 set the previous day.

The euro has support at the 200-day moving average near
$1.2826, with additional support seen roughly around $1.2740,
the 38.2 percent retracement of the July to September rally.

Spain’s reluctance to request a bailout and trigger the
European Central Bank’s new bond-buying programme has weighed on
the euro, which came under pressure on Wednesday as Spanish
10-year bond yields again topped 6 percent.

“In this environment, unless there is news of a Spanish
bailout, I think the momentum is for a weaker euro,” said Mitul
Kotecha, head of global foreign exchange strategy for Credit
Agricole in Hong Kong.

A request by Spain for a bailout could change the picture,
but such action does not appear imminent, he added.

Such a formal request for aid is a condition needed for the
ECB to activate its new bond buying scheme and help lower
Spain’s borrowing costs.

“I think eventually we’ll crack through the 200-day moving
average and move lower, with the euro/dollar likely to test
below the $1.28 level,” Kotecha added.

Demonstrators have clashed with police on the streets of
Athens and Madrid this week in an upsurge of popular anger at
new austerity measures being imposed on two of the euro zone’s
most vulnerable economies.

“Spain will be the focal point of the markets today as Prime
Minister (Mariano) Rajoy presents his economic reforms and 2013
budget,” analysts at BNP Paribas wrote in a client note.

Still, investors were wary of getting too bearish on the
euro since sentiment could shift if Spain were to ask for aid.
As well, nobody wanted to stock up on the U.S. dollar as the
Federal Reserve is running its own stimulus programme.

That confluence of factors saw the common currency down just
around 2.2 percent from a peak of $1.3173 set on Sept. 17, only
a small correction that could yet turn full-scale if sentiment
continued to sour, traders warned.

At the back of the market’s mind is Moody’s review on
Spain’s ratings expected this week. A possible sovereign rating
cut could take the country below investment grade and add
further pressure on policymakers.

The euro’s woes helped keep the safe haven yen on firm

The euro eased 0.1 percent versus the yen to 100.01 yen
, having hit a two-week low of 99.71 yen the previous

The dollar dipped 0.1 percent to 77.68 yen, inching
back in the direction of a seven-month low of 77.13 yen hit on
Sept. 13, the day the Fed announced its new round of aggressive
monetary stimulus.