June 16, 2011 / 8:27 PM / 6 years ago

FOREX-Euro hits record low vs Swiss franc on Greece fears

5 Min Read

* Euro hits all-time low versus Swiss franc

* Traders see euro below $1.40; USD index hits 3-week high

* Greek debt turmoil, bailout confusion deepens (Updates prices, adds details, comment, byline)

By Wanfeng Zhou

NEW YORK, June 16 (Reuters) - The euro fell to a record low against the Swiss franc on Thursday as political turmoil in Greece and uncertainty over new aid for the heavily indebted country intensified.

The single currency, however, recouped losses versus the dollar in late trading as stocks rebounded. Analysts said the euro remained fragile and looked set to slide below $1.40 as long as confusion persists over how and when policymakers will seal a deal to meet Greece's immediate funding needs and put the country's finances on a sustainable path.

Greek bond prices sank to record lows, while the cost of insuring Greek sovereign debt for five years jumped to 1,900 basis points, the highest in the world.

Pressure also grew in the interbank markets as the cost of raising funds in dollars soared for euro zone banks on fears of a Lehman-like lending freeze in the event of a "disorderly" Greek default. See [ID:nLDE75F1NR]

"The situation in Greece is starting to run away a little bit and sort of feels like the Bear Stearns/Lehman run up that we saw in 2007," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. "The euro zone is setting up for a similar situation where the coordinated answer they need is not coming quick enough.

"We still feel that they can come to the rescue in time, and it is not out of control completely just yet, but it is getting dangerously close. All the risk indicators are starting to show stress," he added.

The euro fell as low as 1.1946 Swiss francs EURCHF=EBS on electronic trading platform EBS before climbing back to 1.2047, down 0.4 percent on the day.

Seen as a safe-haven currency, the franc brushed off statements by the Swiss National Bank expressing concern about its gains, as the bank gave no sign of action that would stem the currency's upside. [ID:nZCHFHE79L]

Against the dollar, the euro fell 0.2 percent to $1.4136 EUR=, after hitting as low as $1.4071 on Reuters data.

The euro has lost 3 percent since its June 7 peak near $1.47, though it remains up 6 percent so far this year.

Investors are increasingly unsure whether an agreement on a Greek bailout plan will be reached in the near term. EU and banking sources told Reuters that Germany wants the deadline for a second rescue deal to be pushed back to September. [ID:nLDE75F0WQ]

Bearish Activity

The euro broke below its 100-day moving average around $1.4151. A close below that would send a bearish signal, opening the door for a drop towards May's trough around $1.3970, traders said.

Analysts also noted bearish options activity on CurrencyShares Euro Trust (FXE.P), the exchange-traded fund that tracks the euro/dollar rate. The price of the ETF falls when the euro weakens against the dollar.

Traders exchanged about 44,000 options on the ETF, more than double its average daily volume, according to options analytics firm Trade Alert. The activity was led by heavy action in puts, with the September $128 and $123 puts the busiest options.

"It appears to be spread trading where traders are buying the $128 strike put and selling the $123 strike put, which would be a very bearish play," said WhatsTrading.com options strategist Frederic Ruffy. For details, see [ID:nN16215598]

Further supporting the euro was a report showing factory activity in the U.S. Mid-Atlantic region unexpectedly shrank to a near two-year low in June, adding to recent evidence the economic recovery is stalling. [ID:nN16172420]

Karl Schamotta, senior market strategist at Western Union Business Solutions in Victoria, British Columbia, said despite the weak data, "the reality is the U.S. economy is in a more stable position than its rivals.

"The situation in Europe is under-appreciated, and the U.S. is set to outperform regardless of how negative things get."

The yen also rose because of its perceived safe-haven status, pushing the dollar down 0.5 percent to 80.65 yen JPY= and driving the euro EURJPY= to a one-month low of 113.47.

The U.S. dollar index, which tracks the greenback against a basket of currencies, hit a three-week high of 76.015 .DXY, before retreating to 75.531, down 0.1 percent. (Reporting by Nick Olivari in New York and Doris Frankel in Chicago; Editing by Diane Craft)

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