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FOREX-Euro slips as Greek deal optimism runs thin

07/02/2012 at 14:28

Recasts, adds quotes, detail, updates prices

* Athens baulking at accepting painful terms for new package

* Traders still cling to hopes Greece will secure rescue deal

* Aussie at 6-month high as RBA keeps rates on hold

By Neal Armstrong

LONDON, Feb. 7 Reuters - The euro slipped against the dollar on Tuesday but stayed within its recent range as investors waited to see whether Greece will agree to painful austerity measures that are crucial for a rescue package to avoid a messy debt default.

Optimism over Greece waned during the European session, dragging stocks and risk-sensitive currencies including the Australian dollarAUD=D4 down from their highs.

For Greece, failure to secure the 130 billion euro $170 billion rescue would mean it faces a messy debt default and destabilise the entire euro zone.

"Clearly the tail-risk at this time is that developments in Greece lead to a disorderly situation and a sharp move lower in the euro," said Lee Hardman, currency strategist at BTM-UFJ.

Citi's chief economist Willem Buiter raised the estimate of the likelihood of Greece exiting the euro to 50 percent over the next 18 months, from 25-20 percent previously.

He argued Greece's failure to meet conditionality targets and a steady drop in the willingness of the creditors to pump in more funds meant the prospects of an exit had increased.

On the other hand, if Greece does reach a deal, the euro could receive a short term boost. Any positive reaction for the euro would be fleeting as worries that Portugal may require another bailout and concerns the euro zone will slip into recession would keep investors bearish.

The euro was down 0.2 percent at $1.3100EUR= , well below a six-week high around $1.3235 hit at the end of January. It fell past stops at $1.3210 with more sell-stops cited below $1.3080. Chartists said support for the euro was seen at its Jan. 25 low of $1.2931 and then to $1.2857 - a 61.8 percent retracement of its January rise.

The one-month 25-delta euro/dollar risk-reversal

EUR1MRR=ICAP showed a widening premium for euro puts, showing increasing demand to hedge against a fall in the euro.

Bearishness towards the euro is gathering pace as investors' patience runs thin with Greek debt talks dragging on and officials are racing against time to avoid a messy default.

European Union officials say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before Feb. 15 to allow for complex legal procedures involved in the bond swap to be completed by a March 20 bond redemption.

On Monday, France and Germany called on Greece to hand over the interest it pays on its debt into a protected account to ensure it meets commitments to creditors.

SWISS REAFFIRM PEG

The euro dropped against the Swiss franc after the Swiss National Bank's interim chief Thomas Jordan said the central bank was ready to buy unlimited quantities of foreign currency to defend its 1.20 franc cap and will take additional steps if warranted.

The euro/Swiss francEURCHF=R dipped to around 1.2072 francs from around 1.2082 francs beforehand. Earlier the euro had inched up on market talk before the speech that the SNB could signal its intention to raise the peg.

Against the yen, the dollar gained 0.25 percent to 76.77 yen

JPY= , up from 76.14 reached after upbeat U.S. jobs data last Friday.

The dollar was well bid after Japanese Finance Minister Jun Azumi said the country followed up its record yen-selling intervention last year with covert operations and that it is ready to step in again to counter speculative moves.

Meanwhile, the Aussie dollar held on to much of the gains made after the Reserve Bank of Australia kept interest rates steady, surprising most investors who had wagered on a cut.

The Aussie hit a six-month high of $1.0823 against the dollarAUD=D4 before dropping back to $1.0781, up 0.5 percent on the day.

"If we continue to see positive equity developments it will be very hard to sell the Aussie against the dollar or the yen, but on a relative basis it is starting to look a little stretched," said Adrian Schmidt, currency strategist at Lloyds Banking Group.

Additional reporting by Anirban Nag; Editing by Anna Willard

neal.armstrong@thomsonreuters.comReuters Messaging:neal.armstrong.thomsonreuters.com@reuters.net+44 207 5420876

 
Currency bid prices at 1259 GMT

All data taken from Reuters 
with percent change calculated from the daily U.S. 
close at 2130 GMT. 
                       Last     US Close  % Chg   YTD %   2011 
                                06 Feb

Close 
                       ----------------------------------------- 
 Euro/dlrEUR=      1.3105   1.3131   -0.20    +1.37   1.2928 
 Dlr/yenJPY=       76.78    76.56   +0.29    -0.10    76.86 
 Euro/yenEURJPY=   100.62   100.55   +0.07    +1.24    99.39 
 Dlr/swissCHF=      0.9219   0.9185   +0.37    -1.92   0.9399 
 Stg/dlrGBP=      1.5804   1.5822   -0.11    +1.95   1.5502 
 Dlr/cadCAD=      0.9987   0.9954   +0.33    -2.04   1.0195 
 Aus/dlrAUD=      1.0774   1.0727   +0.44    +5.39   1.0223 
 NZD/DlrNZD=      0.8318   0.8338   -0.24    +6.90   0.7781 
 Euro/swissEURCHF=   1.2082   1.2062   +0.17    -0.59   1.2154 
 Euro/stgEURGBP=   0.8292   0.8297   -0.06    -0.53   0.8336 
 Euro/sekEURSEK=   8.8230   8.8214   +0.02    -1.14   8.9246 
 Dlr/NokNOK=      5.8150   5.8148   +0.00    -2.82   5.9837

Keywords: MARKETS FOREX


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