FOREX-Euro bounces off 4-year low, outlook bearish

* Euro falls to 4-year low before short squeeze

* Analysts see further downside potential

* ECB’s Nowotny says euro in “normal range”

(Updates prices, adds detail)

By Neal Armstrong

LONDON, May 17 (BestGrowthStock) – The euro slid to a four-year low
on Monday on persistent euro zone sovereign debt worries and
fears that planned belt-tightening measures will hurt growth in
the region, before a squeeze of short positions gave it a lift.

German bank euro buying helped the currency recover in a
short squeeze, but analysts said the outlook remained bearish.

“Panic is now showing up in the euro currency because it
can’t be really expressed in the bond markets after the EU/IMF
package,” said Stuart Bennett, currency analyst at Credit
Agricole CIB.

“Fiscal and economic concerns are likely to weigh on the
euro for the foreseeable future, though we might get short
squeezes along the way,” he said.

The euro extended its losses in Asia after falling below the
post-Lehman October 2008 low around $1.2330, where traders said
stop-losses from model accounts were lurking, and fell as far as
$1.2234 on trading platform EBS, its lowest since April 2006.

At 1152 GMT, the euro (EUR=: ) had clawed its way back to
$1.2360 against the dollar, flat on the day. Traders said stops
were hit as the euro moved back above $1.2330.

The euro has fallen more than 7 percent against the dollar
this month, and is about 14 percent lower for the year, making
it the worst-performing major currency.

But ECB policymaker Ewald Nowotny said the fall in the
currency was not a cause for concern, adding the exchange rate
was in a “normal range” and there was no reason for hysteria
about it. [ID:nDEK002037]

Technical analysts said the next key support was at $1.2135,
the 50 percent retracement of the rally from the all-time lows
near $0.82 to the record highs just above $1.60.

Analysts said the widening euro zone problems had prompted a
money market dollar liquidity shortage.

“If the sharp deterioration in money markets persists into
this week, look for central bank action to lower the cost of
access to their dollar funding facilities,” Citibank analysts
said in a note.

A 750 billion euro rescue package from the European Union
and the International Monetary Fund aimed at shoring up euro
zone bond markets has done little to underpin the euro.

On Friday, the single currency euro plunged after European
Central Bank policymaker Axel Weber said it was important not to
underestimate lingering dangers to financial stability.

German Chancellor Angela Merkel said on Sunday the rescue
plan had only bought time to sort out the yawning gap between
the euro zone’s strongest and weakest economies.

Traders say the austerity measures announced by Greece,
Spain and Portugal could hurt growth in the near term and force
the European Central Bank to keep interest rates low.

Data released on Friday showed speculative bets against the
euro hit a record high in the week to May 11. [ID:nN14193796].

Against the yen, the euro traded down 0.7 percent at 113.80
yen after falling 112.47 (EURJPY=R: ) in Asia.

Sterling slid to its lowest since March 2009 at $1.4249
(GBP=D4: ) before rising back to $1.4410, still down 0.9 percent
on the day. The pound was hit by data showing the past year’s
rise in British house prices may be cooling. [ID:nLDE64C1G4]

Weakness in the euro and the pound helped the dollar index (Read more about the global trade. )
(.DXY: ) to rise above 87.00, the highest since March 2009. It
later eased to 86.584.

Stock Market Analysis

(Editing by Nigel Stephenson)

FOREX-Euro bounces off 4-year low, outlook bearish