The euro’s foreign exchange rate edged slightly higher against the US dollar and the Japanese yen in early currency trading on Tuesday but touched a record low versus the Australian dollar and looked set to remain under pressure in 2012 on worries over Europe’s debt crisis.
The euro gained a bit of reprieve as a rise in Asian stock markets underpinned risk appetite and spurred short-covering, helping it stay above an 11-year low against the yen touched the previous day.
Euro Concerns Still Here
Still, worries about high sovereign debt levels and lack of policy solutions to the region’s 2-year old debt crisis were expected to push the euro lower in the coming weeks and months, even if short-covering may offer the euro some intermittent support.
“The concerns that investors have, have certainly not gone away at all.” said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
“The overall bias remains for more euro weakness…given the growth and debt dynamics,” he said, adding that his bank’s forecast was for the euro to fall in the next three months and to stand at $1.20 at the end of the first quarter.
The euro rose 0.3 percent to $1.2977, but stayed within striking distance of its 2011 trough of $1.2858 hit last week on trading platform EBS.
Against the Japanese yen, the euro rose 0.2 percent to 99.67. It fell to as low as 98.71 yen in holiday-thinned trade on Monday on trading platform EBS, its lowest since December 2000.
A trader for a Japanese bank in Singapore said there were likely to be options-related stop loss offers near 98.50 yen, while some stop-loss bids were lurking above 100.50 yen.
“Positioning among traders, especially short-term players, is tilted toward being short the euro on the crosses,” the trader said, adding that the euro might rise to around 102 yen relatively easily if short-covering gains sustain.
The euro’s slide this week to an 11-year low against the yen is likely to cause further pain to Japanese exporters. A number of big exporters have their euro/yen rate assumptions for the six months to March at levels between 103 yen to 110 yen.
Still, currency traders are not too worried about the possibility of Japanese intervention to lift the euro’s foreign exchange rate versus the yen at this point, said the trader for a Japanese bank.