* Anti-austerity votes in Greece, France push euro lower
* Greece might run out of cash by end-June if no govt
* Euro break below $1.30 opens door to test of 2012 low
By Julie Haviv
NEW YORK, May 7 (Reuters) – The euro dropped broadly on
Monday after elections in Greece and France cast doubt on
politicians’ commitment to austerity plans aimed at tackling the
euro zone debt crisis.
Renewed fears about the stability of the euro zone made the
common currency pierce the key psychological level of $1.30 on
its way to hitting a three-month low against the dollar in the
overnight session.
Technical support helped pare losses during New York trade,
though the single currency looked likely to remain under
pressure in days ahead.
The biggest blow to the common currency was the Greek
election, in which the two main parties that support the
nation’s international bailout failed to secure a parliamentary
majority. This threw into question the future of the program and
potentially the country’s membership in the euro.
The euro hit a global session low of $1.2955,
breaking the $1.30 to $1.35 range it has been trapped in since
late January, before recouping losses to last trade down 0.3
percent at $1.3048.
“Technically, the daily momentum remains bearish after the
euro collapsed in the overnight (session),” said Dean
Popplewell, chief currency strategist at OANDA in Toronto. “So
far this morning, cooler heads have retraced some of that loss.”
“Currently, the risk reward is not to hold long euro
positions in such a negative tone environment,” said Popplewell,
noting markets were illiquid with the UK on holiday.
In France, Socialist Francois Hollande, who has pledged to
balance the budget but more slowly than his opponent, ousted
centre-right incumbent Nicolas Sarkozy. The result could trigger
a push-back against German-led austerity across the euro
zone.
There is strong support for the euro around $1.2955, the
61.8 percent retracement of the euro’s rally from its January
low to a high in February.
“There is a lot of technical support at that level, so the
market has calmed down a bit,” said Omer Esiner, chief market
analyst at Commonwealth Foreign Exchange in Washington.
“Clearly damage has been done by this weekend’s political
developments and euro support should dissipate in the days
ahead,” Esiner said. “The euro will likely drop below $1.30
again and find a new range, perhaps between $1.26 to $1.28.”
Uncertainty about the euro has grown over the past week as
evident in the options market, with three-month euro/dollar risk
reversals biased toward euro puts, trading at -2.6
vols, unchanged from the previous session but up from -2.250
vols a week earlier and around -2.0 vols in early April.
Greece might run out of cash by end-June if it does not have
a government in place to negotiate a next aid tranche with the
EU and the IMF and projected state revenues fall short, three
finance ministry officials told Reuters.
“We remain bearish the EUR and optimistic about holding risk
in the medium term,” Barclays Capital said. “Still we
acknowledge recent data have gone against our constructive call
on risk.”
“For this week, we expect risk sentiment to keep trading
sideways with a negative bias until the end of the week, when we
expect data releases from China to bring some relief in the form
of news about a soft landing in economic growth.”
Against the yen, the U.S. dollar was up 0.1 percent
at 79.86 yen, having fallen back below 80 yen, seen as a
support, on Friday after a disappointing U.S. jobs report.
