The euro dropped to a four-month low versus a broadly firmer dollar on Friday ahead of US jobs data, which is expected to provide more evidence of a stronger US economic recovery. A sell-off in peripheral eurozone government bonds before a flurry of supply next week and an EU proposal that could force those who lend to banks to bear big losses should they fail helped knock the single currency lower.
The euro extended losses after sliding more than 2 percent over the two previous days and briefly dipped below support at the $1.2970 area - lows hit in late November and early December. "A break below here will open downside potential towards $1.2590," BNP Paribas strategists wrote in a note, referring to the euro's next significant trough on charts, marked in late August.
While the euro would likely get some respite if the US jobs data disappoints, any gains could turn out to be short-lived, said Robert Ryan, FX strategist at BNP Paribas in Singapore. The euro dipped as low as $1.2965 on trading platform EBS, its lowest since mid-September and not far from stop-loss offers said to lie below $1.2950. Traders, however, said there was talk of good bids for the euro at $1.2920, right near a cluster of intraday highs hit between mid-August to early September that now act as support.
The euro later trimmed its losses and stood at $1.2992, down 0.1 percent from late US trade on Thursday. The dollar benefited from weakness in the euro and remained buoyed by the ADP report, which showed a record number of private sector jobs were created in December.
This prompted analysts to upgrade their forecasts for non-farm payrolls to increase 175,000, up from 140,000 in an earlier Reuters survey. Some in the market are far more ambitious, looking for an increase of more than 450,000. The dollar rose 0.2 percent against a basket of major currencies to 80.956. The dollar advanced 0.2 percent to 83.50 yen after rising as high as 83.57 yen on EBS, its highest in two weeks. This was partially driven by dollar demand from hedge funds, traders said.