5 Min Read
* Moody's downgrades Ireland by five notches
* Euro eyes 200-day moving average at $1.3105
* Euro hits record low versus Swiss franc (Updates prices, adds quotes, details)
By Wanfeng Zhou
NEW YORK, Dec 17 (Reuters) - The euro fell against the dollar on Friday and looked set to extend losses after a multi-notch downgrade of Ireland's credit rating overshadowed solid German economic data and underscored the severity of the euro zone debt crisis.
The euro slumped to a two-week low around $1.3130, with key support seen around $1.3105, its 200-day moving average. A break below could see the currency retest the $1.30 level and slide toward its December low of $1.2970, traders said.
Moody's Investors Service slashed Ireland's credit rating by five notches to Baa1 with a negative outlook from Aa2 and warned further downgrades could follow if Ireland was unable to stabilize its debt situation. For more see [ID:nLDE6BG0EG]
"While the Moody's downgrade of Ireland isn't any surprise, the sheer magnitude of five notches warrants a mention. We haven't seen anything like this since the Asian crisis," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
"We foresee ongoing downgrades for peripheral -- and perhaps even some core -- euro zone countries over the course of 2011 as the debt ratios are going to get much worse before they get better," Thin added.
The euro last traded down 0.6 percent at $1.3151 after touching as low as $1.3133 EUR=EBS on trading platform EBS, the weakest level since Dec. 2.
Losses accelerated after automatic sell orders were triggered below $1.32 and in the $1.3165-80 area, while thin liquidity before the end of the year likely exacerbated the decline. Leveraged accounts and a semi-official European name were also seen dumping the currency, traders said.
The euro had climbed as high as $1.3360 after the Ifo index showed German business morale hit its strongest since 1991 in December. [ID:nLDE6BG0KP]
"Overall the outlook for the euro doesn't look very positive. Going into the year-end, we continue to favor euro/dollar breaking lower," said Mary Nicola, currency strategist at BNP Paribas in New York. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro zone graphic package: r.reuters.com/hyb65p
Euro zone credit ratings: r.reuters.com/get52k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
European Union leaders on Friday agreed at a summit to try to lengthen the maturities of new sovereign bond issues, and confirmed that private investors will be involved in the future euro zone rescue mechanism. [ID:nLDE6BG0O1]
They also agreed to set up a permanent crisis management mechanism from mid-2013, but the news disappointed investors who had hoped for more details and more active measures such as expanding the European Financial Stability Facility or issuing joint European sovereign bonds, so-called E-bonds.
"If they can be proactive, that will be seen as a big positive for Europe. But for the time being, until there's some sort of plan put in place, the euro is still going to trade pretty heavy," said Brendan McGrath, manager of business solutions at Custom House, a Western Union company, in Victoria, British Columbia. "The market wants to see some definite figures."
McGrath said $1.30 will likely provide support for the near term. But he added there's definitely scope for a further move lower if more debt troubles emerge. "Spain remains the big risk," he said.
The euro hit a record low against the safe-haven Swiss franc EURCHF=R around 1.2710 and fell to its lowest since 2006 versus the Swedish crown EURSEK=D4.
The dollar was flat at 84.06 yen, having repeatedly been unable to break cleanly above 84.50 JPY= since late November despite higher yields on the back of improving economic data. (Editing by James Dalgleish)