May 25, 2011 / 6:51 PM / 7 years ago

FOREX-Euro hits record low vs franc on Greek debt woes

* Uncertainty over Greece could keep pressure on euro

* Analysts see euro breaking below $1.40 in near term (Updates prices, adds comments, details)

By Steven C. Johnson

NEW YORK, May 25 (Reuters) - The euro hit a record low against the Swiss franc on Wednesday as investors fretted about Greece’s ability to repay its debts, and traders said it was likely to fall further against the U.S. dollar this week.

Investors fear Athens, which is digging its way out from under massive debt, will struggle to implement more austerity measures given stiff political opposition. [ID:nLDE74O0PW]

That raises the prospect of Greece having to restructure its outstanding debt and, traders said, should push the euro below $1.40, an important support level, in the coming days.

A breach of that level would grease the skids for a move to $1.35, a level last seen in February, unless policymakers can come up with a credible solution to Greece’s problems.

The euro was last down 0.1 percent at $1.4080 EUR=, paring earlier losses after a slide halted at $1.4011.

“For now, there is euro demand around $1.40, but it’s just a matter of time before it goes significantly lower,” said Greg Salvaggio, vice president of trading at Tempus Consulting.

“What’s happening in Europe is the beginning of a prolonged sovereign debt crisis that will play out this summer,” he added. “Polls suggest 80 percent of Greeks oppose more austerity, so if the government forces the issue, it will fall,” which could increase the risk of a debt default.

The euro had an even rougher day against the Swiss franc, falling to a record low of 1.2270 francs EURCHF=EBS, down some 1 percent from late Tuesday.

The dollar rose 0.1 percent to 81.99 yen JPY=, while the euro slipped 0.1 percent to 115.44 yen EURJPY=.

Traders said worries about U.S. public finances and signs of slower growth -- data on April durable goods orders was the latest report to show the economy may be hitting a soft patch -- limited the volume of dollar buying against the euro.

For more, see [ID:nN25129936] and [ID:nN25110127]

EURO DOWNSIDE

The single currency also pared losses after Finland approved an EU/IMF bailout for Portugal, while demand from hedge funds also prompted a squeeze in euro short positions.

Offers from sovereign investors could start appearing around $1.4100, which will limit euro upside. Further resistance is seen around $1.4195, traders said.

A move by clearing house LCH.Clearnet to raise the additional margin required on Irish government bonds also provided a modest euro boost, as analysts said it would require more euro buying in the short-term. [ID:nLDE74O1Z8]

However, Citigroup said in a note that its index on hedge fund positioning showed these investors had unwound long bets on the euro in the past few weeks but they were still in “overextended territory,” implying further euro losses. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ FX COLUMN-Euro breakdown paves way to $1.35 [ID:nL3E7GN0H4] Euro could hit $1.30 if Greece restructures [ID:nLDE74N0U1] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Support lies around the psychologically important level of $1.4000, which also marks the 200-week moving average. Analysts said the euro could break that level later this week, when interest to defend options around that region evaporates.

Below that, the euro/dollar could find support near $1.3985, the 100-day moving average, before sliding toward the $1.3770 area, the 38.2 percent Fibonacci retracement of the euro’s rise from June 2010 to May 2011.

Steven Englander, head of G10 FX strategy at Citigroup in New York, said it is “increasingly difficult” to see how things will hold together to resolve the sovereign borrowing issues.

“The euro at $1.40 is expensive given these pressures. However, it more likely faces a grind lower rather than a cliff jump,” he said.

Additional reporting by Wanfeng Zhou; Editing by Chizu Nomiyama steven.c.johnson@thomsonreuters.com; +1 646 223 6346; Reuters Messaging: steven.c.johnson.reuters.com@reuters.net

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