* Political uncertainty in Greece, Spain banking woes hit
* Options-related demand may support in near-term
* NZ dollar, Australian dollar hit four-month lows
By Neal Armstrong
LONDON, May 9 The euro fell close to a recent
three-month low versus the dollar on Wednesday and the safe
haven yen rose broadly amid worries over the impact on the euro
zone stemming from political turmoil in Greece and the fragility
of Spain's banking sector.
The euro remained under widespread pressure after the leader
of Greece's Left Coalition party said on Tuesday that the
country's commitment to a European Union/International Monetary
Fund rescue deal had become null and void.
Greece's two main pro-bailout parties failed to win a
majority in weekend elections, leaving questions over the
country's ability to avert bankruptcy and stay in the euro.
Added to instability in Greece, French President-elect
Francois Hollande has advocated an approach to tackling the debt
crisis centered more on growth, which may create tensions with
Germany's insistence on fiscal austerity.
Wednesday's moves suggest the political uncertainty is
causing a broader retreat from risky assets. The New Zealand and
Australian dollars, both sensitive to shifts in investor risk
appetite, hit four-month lows versus the U.S. dollar.
"We still think the euro will head lower with $1.2950 the
level to break in the near-term," said Lauren Rosborough, Senior
FX strategist at Societe Generale, who have a medium-term target
The euro fell 0.2 percent to $1.2980, closing in on a
three-month low near $1.2955 touched on Monday. Technical
analysts said the euro had found support on Monday around the
61.8 percent retracement of the it's 2012 rally at $1.2953.
The euro could fall towards $1.28-$1.29 over the next few
weeks, although its drop is expected to be gradual given many
investors are already short of the common currency, market
Options traders said the euro may receive some support
because of potential demand for euros related to option barriers
at $1.2950 and below. The existence of such barriers means
options traders might step in to buy the euro if the currency
dips close to those levels.
Overall however the path for the euro was likely to be down.
Added to the threat of a Greek exit from the euro, the bleak
outlook for Spain's troubled banking sector continued to spook
bond investors, pushing yields on Spanish 10-year bonds back
above six percent on Wednesday.
"In the next four weeks we should know who is controlling
Greece, whether or not it runs out of money or chooses to adhere
to its bailout terms and how the Spanish government plans to
sort out its banking sector," said Kathleen Brooks, Research
Director at FOREX.com.
"There are high levels of market risk associated with all of
these events, which we believe is euro negative."
YEN IN DEMAND
A souring in investor appetite for risk gave broad support to
the low-yielding yen which tends to rise when investors look to
park their money in safer assets.
The euro was down 0.5 percent at 103.35 yen,
while the Japanese currency climbed to a two-and-a-half month
high versus the dollar of 79.61 yen on trading platform
The dollar itself remained supported against a basket of
currencies by its own status as a safe haven, with the dollar
index up 0.2 percent at 79.943.
The Australian dollar was down 0.5 percent to $1.0066
, having touched a low of $1.0052 at one point, the
lowest level in more than four months. The New Zealand dollar
also touched a four-month low at $0.7842.
The Australian dollar fell below 80.20 yen at one
point, the lowest level since January.
Implied option volatilities on Aussie/yen soared to a
one-month high above 13 percent as market
players scrambled to protect themselves against further declines
in the Australian dollar.