Euro at 4-year low vs dollar

Analysts said that Germany’s regulation would do little to help fix Europe’s debt crisis,and that the ban has left foreign exchange as the only market where investors fell free to bet against European assets.

“Stocks and CDS trading are now regulated. The government bond market is supported by the European Central Bank’s buying. So investors have no place but the currency market to express their views on Europe,” said Masafumi Yamamoto,chief FX strategist Japan at Barclays Capital.

Meanwhile,the dollar and the yen benefited as players sought the safety of the greenback,the world’s most liquid currency,and the low-yielding Japanese currency.

The dollar index,which tracks the US unit’s performance against a basket of major currencies,rose to a 14-month high of 87.458.

The euro was down 0.1 per cent at $1.2193. In early Asian trade,it slid as low as $1.2143 on trading platform EBS,its lowest since April 2006.

Traders said option barriers at $1.22 were taken out and more are lined up at $1.21,$1.20 and right down to $1.15.

The euro’s next support is seen at $1.2133,a 50 per cent retracement from its all-time low of $0.8225 hit in October 2000 to its record peak of $1.6040 reached on EBS in July 2008.

If that level is broken,the next support level would be at the psychologically important $1.2000.

WIDER BAN,FURTHER FALL

The euro has fallen about 15 per cent against the dollar so far this year,hammered by concerns that Europe’s debt problems and austerity measures could hamper the euro zone’s economic recovery.

In addition to these fiscal and recovery worries,investors are now eyeing whether other nations will follow Germany as a wider ban could squeeze liquidity in euro zone markets.

Austria’s finance ministry is pushing for a Europe-wide ban of naked short-selling of some financial stocks and debt securities,the Financial Times reported on Wednesday.

Traders said Germany’s move limits risks players can take in euro assets,likely prompting investors to shift their funds elsewhere. A wider ban would only spur the outflow of money from the euro zone,putting downward pressure on the single currency,they said.

“There is some sense of security in holding euro assets as long as money is shifting to Bunds from Greek government bonds,” said Jun Kato,senior manager of the investment department at Shinkin Asset Management.

“But that would all change if investors started selling government debt in Germany and France,with money fleeing from the euro zone. This regulation has a danger of prompting fund outflows.”

Against the Japanese currency,the euro slid 0.4 per cent to 112.13 yen,crawling towards an eight-year low of 110.49 yen struck earlier this month.

The yen rose across the board,lifted by investor risk aversion moves. The higher-yielding Australian dollar dropped 0.9 per cent to 78.58 yen.

The greenback fell 0.4 per cent to 91.91 yen.

Sterling fell as low as $1.4239,its lowest since late March 2009. The pound is under pressure on concerns that potential monetary tightening,added to imminent fiscal tightening,may derail the economy’s recovery.