Euro weak near two-year lows on dire German data

Thu May 24, 2012 6:58am EDT
 
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By Nia Williams

LONDON (Reuters) - The euro hit a near two-year low against the dollar on Thursday after dire German economic data suggested no country in the region was immune from crisis, alarming investors already fretting over the risk that Greece will leave the euro zone.

A weaker-than-expected Ifo business climate index and manufacturing PMI data for May suggested growth in Europe's largest economy that has helped the currency bloc dodge recession may be starting to slow.

Signs of a downturn across the region, banking sector problems in Spain and the risk of contagion ensnaring bigger economies are all combining to keep euro bears firmly in control, with some investors targeting $1.20 in coming weeks.

The euro dropped sharply to $1.25155 on trading platform EBS, its lowest level since July 2010, before recovering to trade at $1.2575 as some investors booked profits on bearish positions initiated earlier. But any rebound was likely to be fleeting and draw more sellers.

Traders reported an options barrier at $1.2500 with more stop-loss orders cited at $1.2480.

The euro has lost 1.4 percent against the dollar so far this week with sentiment already fragile after a European Union leaders summit on Wednesday failed to shed new light on how they might tackle the euro zone debt crisis.

"After the (EU) summit without any results we have still got a lot of uncertainty in Greece. The last thing we need in this situation is the German economy getting into trouble," said Lutz Karpowitz, currency strategist at Commerzbank.

"There are a lot of short positions so there is always a possibility of a retracement in the euro but that does not change the overall (weaker) trend."   Continued...

 
An illustration picture shows Euro banknotes in Brussels November 28, 2011. REUTERS/Thierry Roge