The euro touched four-month lows against the dollar on Monday as stops were triggered amid mounting worries about Europe's debt crisis, after a source said Portugal was under growing pressure to accept EU/IMF aid. The single currency fell to lows not seen since mid-September, slipping as deep as $1.2860 on trading platform EBS, after stops around $1.2900 and $1.2870 were triggered.
Although the euro later pared its losses on short-covering, market players said the single European currency still looked vulnerable due to worries about the level of demand at eurozone debt auctions coming up this week. "I think overall the path of least resistance is going to be the downside for the euro," said Andrew Robinson, currency market strategist for Saxo Capital Markets in Singapore.
Since the euro breached its 200-day moving average last week, the next downside target may be the 61.8 percent retracement of its rally between June to November of 2010 that comes in right below $1.2800, Robinson said. The euro last stood at $1.2908, steady from late US trading on Friday.
Further downside targets for the euro include its September 2010 low of $1.2642 and then the August 2010 trough at $1.2588. "Longer-term players are even talking about parity," said a trader for a major Japanese bank in Singapore. The common currency had already been under pressure last week, falling from a peak of $1.3435 on January 4, as investors sold peripheral eurozone bonds ahead of new debt supply from the likes of Portugal and Spain this week.
Portugal - seen by many as the next country after Greece and Ireland to need bailing out - will draw the most intense scrutiny when it attempts to sell up to 1.25 billion euros of five- and 10-year debt on Wednesday. A senior eurozone source told Reuters on Sunday that pressure was growing on Portugal from Germany and France to seek financial help from the EU and IMF to stop the bloc's debt crisis from spreading.
The dollar benefited from the euro's weakness. The dollar index, which measures its performance against a basket of major currencies, rose to a five-week high of 81.203, recovering from a brief dip following disappointing US non-farm payrolls data on Friday. The dollar index later trimmed its gains to stand at 81.133, steady from late US trade on Friday.
The dollar's upside looked limited after the jobs report on Friday showed a rise of 103,000 jobs in November, well short of economists' expectation for 175,000. The unemployment rate at 9.4 percent was still very high, albeit down from 9.8 percent in November as fewer people looked for work. That suggests the Fed will not be in any hurry to wind down its programme of buying assets to stimulate the economy, despite a recent string of upbeat data that pointed to a more self-sustaining recovery. In fact, US Federal Reserve Vice Chair Janet Yellen on Saturday defended the central bank's controversial asset-buying efforts, citing an internal study showing the full programme will result in a gain of 3 million jobs.
The dollar held steady against the yen at 83.11 yen.
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