Euro drops in Asia

The euro dropped to its lowest since October 1 against the dollar and the yen, as investors shied away from risk on concerns about weak earnings in the United States due to slowing global growth. Asian shares followed a drop on Wall Street overnight, when technology stocks fell on brokerage downgrades of Intel and other major companies, as worries mounted about third-quarter US earnings, which firms began reporting on Tuesday.
"Currencies will generally take their cue from stocks... Markets overnight turned against risk and whether that will be reversed will depend on how equities react to US third-quarter earnings results," said Junya Tanase, chief FX strategist at J.P. Morgan Chase.
On Wednesday, the euro slipped 0.3 percent to $1.2835 at one point, its lowest since the start of this month and coming close to an important technical support of its 200-day average at $1.2822. Some traders say the market is likely to test that level to trigger more stop-loss orders. "If the 200-day average is broken, there will be selling from model players. I feel the market is likely to test that level," said Takahiro Suzuki, vice president of forex at Nomura Securities.
Weak risk sentiment is likely to hurt growth-linked currencies such as the Australian dollar, which is also holding near an important chart support against the yen. The Aussie was quoted at 79.90 yen, just above strong support around 79.50 yen. Against the US dollar, the Aussie was flat at $1.0215, above its three-month low of $1.0149 hit on Monday. "If the euro breaks the 200-day average, then the Aussie/yen is likely to test its important support, so it could cause a cascade of market moves in many currency pairs," Nomura's Suzuki added.
As the euro sagged, the dollar index, measured against a basket of six key currencies, rose to a one-month high of 80.186, a gain of 0.3 percent from late US trade. Against the yen, the dollar was little changed at 78.20, and its recent narrow trading band is helping to push down implied volatilities on dollar/yen options.
One-month volatility fell to around 6.4 percent, near recent support levels near 6.3 percent. "In both the US and Europe, stock markets remain on edge. The cut in IMF forecasts for growth across the globe in 2013 coincided with a drop, but it is worth noting that the IMF is usually very conservative and cautious," said Mikayel Verdyan, an analyst at online broker Forex Club.
Uncertainty in the euro zone has hurt sentiment and capped the euro's upside. Investors fret about when Spain will request a bailout to help streamline its huge public debts and when Greece will agree with its international lenders on terms for the next tranche of funds needed to keep that country afloat.