The euro slid to a two-week low today, looking vulnerable to more losses against the dollar after breaching chart support the previous session, while the market kept watch on rising tensions in the Korean peninsula.
The euro, which was pressured by a five-notch downgrade of Ireland's sovereign credit rating on Friday, was within reach of support at $1.3100-3090, a retracement level and its 200-day moving average.
Many in the market expect the euro to remain vulnerable into the new year as investors await more aggressive solutions from European leaders to address debt concerns in the region, although activity is dwindling ahead of holidays at the end of the week in many financial centres.
"The dollar has been generally supported this morning by tensions in the Korean peninsula and concerns over European debt problems," said Tsutomu Soma, senior manager at Okasan Securities.
South Korea started a planned artillery firing drill today, despite threats of attack by North Korea and pressure from Russia and China to cancel the exercise. South Korean stocks and the won fell early in the day but later cut their losses.
The euro's November low, just below $1.2970, is seen as an important support level.
The euro was down 0.2 per cent from late US levels, at $1.3161, after earlier slipping to a two-week low of $1.3125.
Those who had expected range-bound trade ahead of the holidays, including some model players, are being forced to close their euro long positions, traders said.
"Since the downgrading of Ireland last week the market has become increasingly sensitive about debt problems in Europe, which is keeping the euro on the defensive," said a Japanese bank trader.
Japanese exporters were also selling the euro, which helped push the single currency to a two-week low of 110.17 yen.
The euro also slipped 0.2 per cent against the Swiss franc to 1.2750, hovering just above a record trough of 1.2720 hit on Friday as investors continued to shun the euro.
The dollar eased 0.1 per cent against the yen to 83.88 yen on Japanese corporate selling, slipping further below last week's three-month high of 84.51 yen.
However, speculators have been cutting their long yen positions. Data from the US Commodity Futures Trading Commission showed on Friday they almost halved their net yen long positions to 12,735 contracts last week.
Tensions on the Korean peninsula underpinned the dollar. The South Korean won shed more than 1 per cent to 1,167.90 won per dollar at one point, near a low around 1,170 hit in the wake of North Korea's shelling of a disputed island last month, before later recovering.
Reuters
