Euro Flat, but Further Fall Expected

The euro was mostly flat in static Asian trading Wednesday after tumbling overnight to its lowest level against the dollar in nearly a year, but traders say that with no magic bullet likely for the euro zone's debt woes, the single currency looks set to slide further.

"It's a matter of time" before the euro falls through the $1.3000 mark, said Dai Sato, senior vice president of the foreign-exchange division at Mizuho Corporate Bank. "The question is how much further the euro will fall below that."

Mr. Sato said the next target could be around $1.2860, which would match the lowest level of the year, hit in January.

"At the same time, there is a feeling the euro may find a near-term bottom amid fresh developments if European and U.S. stocks rebound, even though there is a risk of a sudden fall due to concerns over the possible downgrading of euro zone countries," he added.

At 550 GMT, the euro was at $1.3034 from $1.3038 late Tuesday in New York, and at ¥101.65 from ¥101.64.

The euro took a hit during the European day Tuesday after German Chancellor Angela Merkel expressed her opposition to raising a €500 billion ($652 billion) lending limit for the permanent euro-zone bailout fund, the European Stability Mechanism, which is due to come into operation in July 2012. "The comments contained no surprises, but came at a bad time," Mizuho's Mr. Sato said.

Traders said euro bearishness could persist unless Germany and the European Central Bank step up their contributions to efforts to put an end to the crisis. "But such changes are unlikely to occur soon," Mr. Sato added.

The euro will likely come under pressure against the yen, said Junya Tanase, chief currency strategist at JPMorgan in Tokyo, adding that "there's a chance it may fall below ¥100." That would be a new 10-year low, breaking the mark of ¥100.77, set in October.

Barclays Capital's chief Japan currency strategist, Masafumi Yamamoto, said the euro could fall to as low as $1.2000 and ¥96.0 over the next year as investor concerns over European debt problems continue.

Traders will keep a close eye on an Italian bond auction later in the day, as well as EU industrial production data for October. The dollar was at ¥77.97 against ¥78.01 and at 0.9454 Swiss francs from 0.9460 francs.
The U.K. pound was at $1.5483 from $1.5480. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 80.300 from about 80.293 in late New York on Tuesday.

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