September 5, 2011 / 10:22 AM / 8 years ago

FOREX-Euro knocked by Greece, Italy debt concerns

 * Euro hits 3-week low vs dollar, USD index hits 1-mth high
 * Greek, Italian fiscal issues weigh on single currency
 * Euro faces more downside risk on German legal vote, ECB
 By Naomi Tajitsu	
 LONDON, Sept 5 (Reuters) - The euro fell broadly on Monday,
touching a three-week trough versus the dollar as worries about
Greek and Italian public deficits and a regional election rout
for Germany's ruling party cast more doubt on the euro zone's
ability to tackle its debt crisis.	
 The single currency fell to $1.4113 on electronic
trading platform EBS, its weakest since mid-August. It pared
losses as Asian sovereign names stepped in to buy the euro ahead
of $1.4110, while bids were seen below that key technical
support level.	
 Other currencies perceived to be higher risk, including the
Australian and New Zealand dollars, also took a hit against the
dollar, while the greenback climbed to a one-month high versus a
currency basket.	
 The suspension of an EU/IMF mission to Greece late last week
has raised questions over whether Greece can cut its budget
deficit enough to secure another tranche of bailout funds, while
Italy's inability so far to meet its budget commitments
continues to hammer its sovereign bond market. 	
 Analysts see more downside risks to the euro after a big
fall in support for Angela Merkel's Christian Democrats in a
regional vote in Mecklenburg-Vorpommern on Sunday highlighted
the German chancellor's waning popularity. 	
 Merkel has been losing support as Europe's top economy bears
the brunt of assisting its heavily indebted neighbours, and
Sunday's result suggests she will face a hard time winning the
blessing of voters for more aid, while political instability
 "The pressure will be for the euro to move lower given the
news flow, but every time we move down to these levels we see
(sovereign) rebalancing flows come in," said Richard Falkenhall,
currency strategist at SEB in Stockholm.	
 "So whether we will see a break below $1.41 is hard to say."	
 Asian sovereign buying in euros, along with Russian and
eastern European demand ahead of $1.4110 helped to lift the
single currency from its lows.	
 Technical support also reinforced $1.4110, the 61.8 percent
Fibonacci retracement of the euro's July-August rally.	
 The euro rose to around $1.4160 in European trade, but its
upside was limited by sell offers from $1.4180 through $1.42,
while some large banks were interested in selling above that.	
 The euro's losses pushed the dollar to 75.074 versus
a currency basket, its highest since early August. The basket is
weighted mainly in euros, making it sensitive to fluctuations in
that currency.	
 Against the yen, the dollar was flat on the day at
 The Australian and New Zealand dollars  
each fell around 1.0 percent versus their U.S. counterpart.
Those commodity-linked currencies are considered higher risk due
to their higher yields and their dependence on growth in the
global economy. 	
 The single currency fell 0.7 percent to 1.1113
Swiss francs, as the ongoing economic concerns in the euro zone
along with evidence of a continued slowdown in the U.S. economy
raised demand for safe-haven assets.	
 The franc's broad gains in the past week or so have raised
expectations the Swiss central bank may have to initiate more
measures to weaken the currency. 	
 The euro faces a week packed with more potential event risk
-- political, legal, and economic -- that could pressure the
currency lower.	
 Germany's constitutional court will rule on Wednesday on
suits claiming Berlin is breaking German law and European
treaties by contributing to multi-billion euro bailouts of
Greece, Ireland and Portugal. 	
 Focus will also be on a slew of policy announcements by
major central banks, given strong indications the global
economic recovery is stuttering.  	
 This was highlighted by U.S. data late last week showing
employment growth ground to a halt in August.	
 Analysts said the euro will face more selling if the
European Central Bank, which will make a policy announcement on
Thursday, suggests increasing concerns that a deepening debt
crisis is cranking up overall risks to the euro zone.	
 "The biggest downside risk for the euro is for a more dovish
statement from the ECB, highlighting the impact of negative
developments of late and potentially suggesting that the
slowdown that we've been seeing is here to stay," said Valentin
Marinov, currency strategist at Citi.	
 "This would open the door to speculation for a rate cuts.
and that's not what the market is expecting," he said, adding
that this could trigger a test of $1.40 in euro/dollar.	
 Investors also awaited plans due on Thursday from U.S.
President Barack Obama to kickstart job creation.	
 Aggressive measures would be seen as positive for the global
growth outlook, but many in the market say appetite is low for
expensive spending given that the government's fiscal house is
in disarray.	
 (Editing by John Stonestreet)	
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