FOREX-Euro falls to 3-week low vs dollar on Greece delay

Thu Feb 16, 2012 4:32am EST

Related Topics

* Decision on Greek bailout off until at least Monday

* Traders unsure how Athens can redeem debt with no bailout

* Euro risks more falls; Dollar/yen hits 3-1/2 month high

* Swedish crown falls as central bank cuts rates

By Jessica Mortimer

LONDON, Feb 16 (Reuters) - The euro fell to a three-week low versus the dollar on Thursday as euro zone officials put off agreeing further aid for Greece, sparking fears of a chaotic default and leaving the euro vulnerable to more falls.

Frustrated by Greek political wrangling, euro zone finance ministers on Wednesday failed to reach agreement on a bailout package for Athens, delaying a decision on the matter until ministers meet on Monday.

"There are no answers on how Greece will be treated ... If there is no resolution it poses risks for the euro," said Carl Hammer, chief currency strategist at SEB in Stockholm.

The euro was down 0.6 percent at $1.2992, having broken below a reported options barrier at the key psychological level of $1.3000 to hit $1.2983, its weakest since Jan. 25. Technical analysts said a cluster of support around $1.2965-75 may help stem losses.

SEB have a forecast for the euro to fall to $1.25 by the end of the first quarter, but Hammer said it could reach this level sooner. A break below support around $1.29 would open up a move towards the mid-January low around $1.2624, he said.

EU sources said the euro zone is examining ways of holding back parts or even all or even all of Greece's second bailout funds while still avoiding a disorderly default when bond repayments are due next month.

"The talk of delaying the bailout package is raising uncertainty. It's not clear whether Athens will be able to secure funds needed to redeem bonds on March 20," said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Greece has 14.5 billion euros of debt repayments due that day, which it cannot pay without the help of international lenders. Traders are unsure how policymakers would be able to hold back bailout funds without triggering a messy default.

If the Greece situation is not contained fears will quickly grow that other highly indebted euro zone countries may follow.

The uncertainty prevented the euro benefiting from news that party leaders in Athens have met the final two demands set by international lenders to seal the bailout.

The single currency broke below important support including a 38.2 percent retracement of its rally this year at $1.3056, and its 55-day moving average of $1.3048.

The euro was steady against the yen at 102.33 yen , unable to clear important resistance including the 90-day average at 102.74 and Ichimoku cloud top at 102.79.

DOLLAR FIRMS

Risk aversion due to the Greece worries buoyed the safe-haven U.S. dollar, with the dollar index hitting a three-week high of 80.078.

The U.S. currency also rose to a 3-1/2 month high of 78.79 yen, with traders citing stop loss orders above 78.80 yen, although option-related offers ahead of 79 yen may cap gains.

The dollar was lifted versus the yen after a firm break above its 200-day moving average this week, though some analysts cautioned that it was premature to say whether there would be further gains in the dollar.

The minutes of the Federal Reserve's January policy meeting showed a few officials believed another round of quantitative easing, which is typically negative for the dollar, would be needed to support the U.S. economy.

"In the past few years, the dollar/yen has broken above the 200 day average many times but they have proved to be false signals (of a bull trend)," said Makoto Noji, senior strategist at SMBC Nikko Securities.

"The Fed's minutes also showed QE3 is possible so it's hard to just keep selling the yen, even though U.S. shares didn't react positively to the minutes," he added.

Elsewhere, the Swedish crown fell against the euro after the Swedish central bank cut interest rates by 25 basis points to 1.50 percent.

The Australian dollar was down 0.4 percent at $1.0662 , erasing earlier gains following strong Australian employment data as doubts over a Greek bailout undermined risky assets.

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