FOREX-Euro sinks to 2-mo low vs dollar; lower seen likely

* Euro falls below 200-day moving average around $1.3130

* Euro/dlr volatilities up as market senses further falls

* U.S. economic data could sway market sentiment
(Updates prices, adds comment, changes byline)

By Julie Haviv

NEW YORK, Nov 29 (BestGrowthStock) – The euro sank to two-month
lows against the dollar on Monday, with more weakness expected
as investors were left unimpressed with Ireland’s rescue
package and remained fearful that another debt-burdened euro
zone economy could be bound for a bailout.

Analysts expect further losses in the euro given the
uncertainty surrounding the fiscal outlook of the region’s
peripheral countries. The next key target is $1.30 after the
euro fell (Read more about the trembling euro. ) below the 200-day moving average around $1.3130.

“There is a real possibility the euro could hit $1.30 by
the end of the week,” said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington D.C.

“Given the momentum already in place, the euro will likely
be between $1.29 and 1.32 at the end of the year,” he said.

European Union finance ministers endorsed an 85 billion
euro rescue package for Dublin and approved outlines of a
permanent crisis-resolution system that could make private
bondholders share the burden of restructuring sovereign debt
after 2013. [ID:nLDE6AR0MC]

Sentiment remained fragile with a sale of Italian bonds
meeting lukewarm demand and highlighting investors’ unease
about euro-zone debt. [ID:nTAR001551]

“The markets remain concerned about prospects in the euro
zone,” said Matthew Strauss, senior currency strategist at RBC
Capital in Toronto. “If Spain were to apply for a bailout, that
would require a bigger amount because of the size of its
economy. And this continues to weigh on the euro.”

The euro fell (Read more about the trembling euro. ) to $1.3117, down 0.9 percent on the day, but
above a two-month low of $1.3065. The euro fell (Read more about the trembling euro. ) below a key
leve, the 50 percent retracement from the early June lows to
early November highs, at the $1.3080 level.

Investors also took out option barriers at $1.31, traders

Euro/dollar implied volatilities extended a recent rise,
reflecting nervousness about the single currency. One-month
volatilities (EUR1MO=: ) spiked to 15.19 percent, the highest
since at least June, from 13.85 on Friday.

The one-month 25-delta risk reversals, a gauge of currency
sentiment, traded as low as -2.775 vols (EUR1MRR=GFI: ) for euro
puts versus a close of -2.3 on Friday.

The cost of insuring Portuguese and Spanish debt against
default rose to a record high on Monday. [ID:nLDE6AS114]


Euro zone crisis timeline:

Multimedia coverage:

Graphic on sovereign debt woes:


There is plenty of U.S. economic data this week that has
the potential to sway market sentiment, culminating with
Friday’s November payrolls report.

Commonwealth’s Esiner said if data surprises to the upside
it will bode well for the dollar.

“The dollar had suffered from an overly pessimistic view of
the U.S. recovery, so if there is good news about the U.S.
economy we should see additional unwinding of short dollar
positions into the year-end,” he said.


Ireland said the emergency loans would run for an average
of 7.5 years, with an interest rate of around 6 percent. Many
analysts say markets are still likely to turn on Portugal and
Spain, seen as the euro zone’s next weakest links.

Many traders said the European Financial Stability
Facility, a joint EU-International Monetary Fund reserve
created in May, may not have enough funds to support Spain.

Another source of uncertainty is a lack of details on a
Franco-German proposal to make private bondholders share the
burden of losses on sovereign debt restructuring.

“That suggests the broader fiscal backdrop in the euro zone
could remain troubled for longer, particularly if other, larger
countries also require bailout programs, and as well raises
troubling questions about moral hazard,” wrote Bob Lynch,
currency strategist at HSBC in New York.

Analysts said the market would be watching whether European
Central Bank policymakers, meeting on Thursday, would remove
some of the emergency measures put in place earlier this year.

The euro’s losses helped the dollar index (Read more about the global trade. ) (.DXY: ) to its
highest in two months at 81.142. The dollar also hit a
two-month high of 84.41 yen (JPY=: ) and was last at 84.26 yen,
up 0.2 percent.

(Additional reporting by Gertrude Chavez-Dreyfuss, Editing
by Chizu Nomiyama)

FOREX-Euro sinks to 2-mo low vs dollar; lower seen likely