The euro slid to a two-month low against the dollar and hit a record low against the Swiss franc on Monday, hurt by ongoing worries about the potential for debt restructuring by Greece, with market positioning pointing to the chances of a further drop.
The euro came under renewed selling pressure after its fragility was highlighted late last week when ratings agency Fitch downgraded Greece, and Norway said it was suspending a grant payment to the country. The euro's drop gained steam after triggering stop-loss selling below 1.24 against the Swiss franc. The euro took out an option barrier at 1.2350 francs and hit a record low of 1.2345 francs on trading platform EBS. It was last down 0.4 percent on the day at 1.2378 francs.
Against the dollar, the euro slid 0.8 percent to $1.4044, having touched a two-month low at one point. The euro now has a cluster of support starting around $1.4000, which roughly coincides with its 200-week moving average. Other possible downside targets include $1.3975, the bottom of the cloud on daily Ichimoku charts, a Japanese technical analysis tool used by market players. Another is the 100-day moving average near $1.3969.
The latest positioning data from the US Commodity Futures Trading Commission shows that currency speculators reduced their net long positions in the euro to 41,645 contracts in the week to May 17. While that is well below the peak above 99,500 lots hit a few weeks earlier, it is still at the higher end of net long positions in the euro seen since late 2007.
The euro's drop helped give a lift to the dollar, which hit a seven-week high against a basket of major currencies and rose above chart resistance, setting itself up for further gains. The dollar index rose as high as 76.133, having clawed above resistance near 76.00, roughly the 38.2 percent retracement of the dollar's January to May slide and where the dollar index peaked last week before turning lower. The next retracement level lies near 77.00, the 50 percent retracement of the same dollar drop.
The dollar rose broadly, with a drop in Asian equities and commodity prices suggesting that investors were cutting back positions in risky assets. In another sign of such risk reduction, the Australian dollar slid 1.1 percent to $1.0544. "Commodities and equities remain a focal point. I get the sense that they remain unstable," said a trader for a major Japanese bank in Tokyo. The dollar edged up 0.2 percent to around 81.88 yen. Traders said the dollar could extend its gains against the yen if stop-loss buying at levels near 82.10 yen is triggered.
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