FOREX-Euro plummets to 2-1/2-month low vs U.S. dollar

* Euro hits 2-1/2-month low vs dlr; falls vs Swiss franc

* Euro implied volatilities rise

* Contagion fears weigh as peripheral bond spreads widen
(Updates prices, adds quote, changes byline, dateline;
previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 30 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) across the board
on Tuesday, plunging to 2-1/2-month lows against the U.S.
dollar, with losses seen accelerating given nagging worries
about euro zone sovereign debt.

A financial rescue deal for Ireland failed to contain
contagion fears as the euro fell (Read more about the trembling euro. ) below the critical $1.30 level
and investors took out many options barriers on the way. The
next key figure to watch, traders said, is $1.2794, the 61.8
percent retracement of the June to November rally.

In tandem with euro weakness, the premiums investors demand
to hold Spanish and Italian sovereign bonds over German debt
jumped to lifetime highs while yields on Portuguese, Irish and
Belgian bonds also widened. [GVD/EUR]

“The European credit market is in panic mode because of
fears of insolvency (for some euro zone countries) and the euro
is trading off those credit yields,” said Boris Schlossberg,
director of FX research at GFT in New York.

“For the euro to stabilize, credit yields need to stabilize
and for that to happen we need action from the European Central
Bank. The Irish bailout was not enough and so the pressure is

The ECB meeting this Thursday is therefore crucial as
investors will be looking for comments on how the bank could
help address growing hysteria in the credit and currency
market. It is also widely expected to keep rates on hold and
sources say it could extend banks’ access to unlimited
three-month funds beyond January. For more see

The euro (EUR=EBS: ) fell to $1.2969 on EBS trading systems,
its lowest since Sept. 15, before modestly recovering to
$1.2977, down more than 1 percent. Some traders said there is
minor support around $1.2920, the Sept. 6 high. That level
preceded a steep rally in the euro that took it all the way to
that early November high at $1.4283.

The euro also stayed well below its 200-day moving average,
currently around $1.3127, having closed beneath it on Monday to
signal a bearish trend ahead.


Traders said the ease with which the euro had broken key
levels in recent days reflected the extent of negative
sentiment towards the currency, which has lost around 9 percent
against the dollar since its peak this month.

Euro/dollar implied volatilities spiked on Tuesday to a
peak of 15.55 percent (EUR1MO=: ), the highest since at least
June, suggesting nervousness about the euro zone currency.

The one-month 25-delta risk reversals, a gauge of currency
sentiment, traded as low as -2.85 vols (EUR1MRR=GFI: ) for euro
puts versus a close of -2.73 on Monday.

Further reflecting the euro’s negative bias, the latest
positioning data from the Commodity Futures Trading Commission
showed speculators going net short on the euro for the first
time since Sept. 14. [IMM/FX]

“With euro positioning nowhere near any extreme there is
more scope for downside over the coming sessions,” a
London-based trader said. “Flows retained a negative euro bias
with macro funds selling euro cash and positioning to the
downside via options.”


Euro zone debt timeline:

Take a Look on Irish bailout: [ID:nLDE68T0MG]

Euro zone crisis :

Graphic on debt problems:

Euro correlation with Greek and Irish bond spreads


The euro zone single currency slid to 1.2972 Swiss francs
(EURCHF=R: ), 108.90 yen (EURJPY=R: ), and 83.665 pence against
sterling (EURGBP=D4: ), all more than 10-week lows.

With the spotlight on the euro, the dollar continued to
gain, hitting a more than two-month high at 81.444 against a
currency basket (.DXY: ), lifted by safe-haven flows and recent
evidence of an improving U.S. economy.
(Additional reporting by Jessica Mortimer in London; Editing
by James Dalgleish)

FOREX-Euro plummets to 2-1/2-month low vs U.S. dollar