The euro's losses deepened on Tuesday as resurfacing concerns about peripheral eurozone debt kept it under pressure, and as some players closed long euro plays against the dollar ahead of year-end book-closing. The euro fell to its lowest in over a week against the dollar, testing support at $1.3835 and with potential for a slide to more important support at its October 20 low around $1.3700.
The dollar eased against the yen with Tokyo dealers saying one foreign bank had been selling dollars, triggering stops around 80.80 yen which pushed it down and wiped out some of its strength. One trader said there was also talk of large accounts in Asia selling the euro over the past day. The European currency was on the back foot against the yen, shedding 0.7 percent after a drop of 0.8 percent on Monday.
The market became very short dollars ahead of last week's Federal Reserve decision on additional bond buying and part of the euro's falls stem from unwinding of dollar short positions, while the market is turning whippy as liquidity thins.
Gareth Berry, strategist at UBS in Singapore, said the market was seeing concern about Ireland as a chance to get in and sell the euro after its rally from $1.27 in September to a 10-month high of $1.4283 last week. A trader at a European bank said some macro players and Commodity Trading Advisers, who are short-term players, are closing their short positions in dollar forwards and futures ahead of their book closing at the end of this month or next.
However, they were still sticking to dollar bearish views and were buying dollar puts at the same time to capitalise on any further drop. Some say many players have not had an easy year and might close their books earlier than normal, meaning liquidity could thin out towards the end of the month and into early December.
The euro fell 0.4 percent to $1.3872, having found some support near $1.3835, a 76.4% retracement of its move up from $1.3697 on October 20 to $1.4283 on November 4. A more important support is its October 20 low of 1.3695, where a break could signal that the currency has peaked near term.
Against the yen, the euro shed 0.7 percent to 112.16 yen, threatening a sustained break of major support around 112.20 yen - the top of the cloud on the daily ichimoku chart. The euro also hit two-month lows versus the Aussie at A$1.3685. EU Economics Commissioner Olli Rehn, on a visit to Ireland, said he had not discussed any need for an EU bailout with the country, and that he believed market confidence would be restored once the country published its four-year plan to cut debt.
Ireland is expected to publish details of its plan later this month. Worries about a political impasse in Dublin ahead of a key budget vote saw 10-year Irish bond yields shoot above 8 percent on Monday - much higher than the cost of borrowing from the European Union's emergency fund. The dollar index, a measure of its performance against a basket of currencies, edged up 0.2 percent to 77.19.
The dollar was still down 0.3 percent on the day at 80.95 yen after earlier holding steady above 81.00. It remains within sight of its 1995 record low of 79.75 yen and capped at 82 yen, where offers from Japanese corporates were seen. "Unless we have new trading factors, it's hard to see the dollar/yen rising above that level," said Daisuke Karakama, market economist at Mizuho Corporate Bank.
The Australian dollar, which tends to suffer if risk appetite retreats, fell 0.2 percent against the dollar and 0.6 percent against the yen to 81.76 yen. But fellow high-yielder the New Zealand dollar plunged 0.8 percent to $0.7819 and 1.2 percent to 63.18 yen as reports of a bacterial infection in a New Zealand kiwifruit orchard also weighed it down.