Categorized | Forex

FOREX-Euro hits 3-1/2-mth low, Aussie eyes parity

FOREX-Euro hits 3-1/2-mth low, Aussie eyes parity

* Euro extends losses on stop-loss selling

* News of JPMorgan trading loss dents risky assets

* Aussie sags after China industrial output disappoints

* Dollar index hits two-month high as safety sought

By Anirban Nag

LONDON, May 11 (Reuters) – The euro fell to a 3-1/2-month low while growth-linked currencies like the Australian dollar tumbled on Friday as news of JPMorgan’s trading losses from a failed hedging strategy and soft Chinese economic data spooked investors.

These concerns lifted the safe-haven U.S. dollar with the euro vulnerable to more losses as political deadlock keeps Greece without a government.

That has left investors fretting over the risk of the nation exiting the euro zone and fanned worries that the region’s debt crisis may worsen. Traders said a reported euro option barrier at $1.2900 was the near term focus.

The euro fell at one point to $1.2905 on trading platform EBS, its lowest level since late January, with stop-loss selling adding to its drop. It last stood at $1.2915, down 0.2 percent on the day. Its losses lifted the dollar index to a two-month high of 80.336.

“The Greek political situation, the Spanish banks’ problems and now the souring risk dynamics are all negative for the euro,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.

“I would not be surprised if it makes an attempt to drop below $1.2900 later in the session as there are plenty of reasons to go short ahead of the weekend. All this means that the U.S. dollar and the yen will be supported.”

Traders said the euro and growth-linked currencies came under renewed pressure as investors shunned risky assets after JPMorgan Chase & Co said on Thursday that it suffered a trading loss of at least $2 billion from a failed hedging strategy.

“The question is how many other banks will follow,” said a trader for a major Japanese bank in Singapore. “I personally don’t think the issue ends here with JPMorgan,” he said.

Both the dollar and the yen, safe haven currencies that tend to strengthen in times of market stress, advanced. The euro fell 0.3 percent to 103.05 yen, closing in on a three-month low of 102.76 yen hit earlier this week.

AUSTRALIAN DOLLAR EYES PARITY

Adding to the negative tone across financial markets, Chinese industrial production weakened sharply in April as investment slowed to its lowest level in nearly a decade, coming in well below forecasts.

That took a toll on growth-linked currencies like the Australian and New Zealand dollars. The Australian dollar, which is sensitive to news from China, Australia’s largest export market, was now looking set to drop below parity against the U.S. dollar.

The Australian dollar was down 0.5 percent at $1.0020 , having fallen to $1.0018 at one point, its lowest level in nearly five months. It was on track to end the week down more than 1 percent, taking losses to around 4 percent so far this month.

The souring in risk appetite comes at a time when the euro is likely to remain weak due to increased political uncertainty in Greece. The two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country’s ability to avert bankruptcy and stay in the euro.

Market players see the euro getting little respite for now.

Adam Gilmour, head of FX and derivatives sales, Asia-Pacific, for Citigroup in Singapore, pointed to further political risks for the euro in the months ahead.

“I’m bearish. This is the right direction for it to go,” Gilmour said.

“There is a very real risk that over the next year or so, more and more countries will eject the current politicians and vote in pro-growth parties, and the austerity measures and trying to fix the budget blowouts will be thrown out the window,” he said.

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