April 5, 2012 / 8:37 PM / 6 years ago

CORRECTED-FOREX-Euro hits multiweek lows, breaks 1.20 francs floor

* Euro hits 3-week lows vs dollar, yen on rise in Spain
    * Options markets suggest euro anxiety
    * SNB steps in as euro dips under 1.20 francs floor
    * Friday U.S. March jobs report eyed

    By Julie Haviv	
    NEW YORK, April 5 (Reuters) - Worries about Spain's high
debts pushed the euro on Thursday to multiweek lows against the
dollar and the yen and prompted the Swiss National Bank to take
action to curb the franc's strength against the euro zone single
    The euro fell for a fourth day against the greenback as a
jump in Spain's borrowing costs made investors nervous about the
country's ability to meet budget targets that could mark another
escalation of the euro zone debt crisis. 	
    Fears about Spain will likely keep the European Central
Bank's policy in an accommodative mode, with dovish comments by
ECB president Draghi on Wednesday affirming that notion. That
contrasts with the U.S. Federal Reserve, which this week
downplayed expectations of adding more monetary stimulus.	
    As the U.S. economy improves, U.S. short term rates could
start rising before ones in the euro zone, eliminating one of
the key weaknesses for the dollar.	
    "Spain is not Greece and is a much bigger contributor to
GDP, so the jump in yields is a very valid concern right now,"
said Dan Dorrow, director of research at Faros Trading in
Stamford, Connecticut.	
    "The euro zone firewall set up is not big enough to save
Spain," he said. "If the ECB were the Fed right now they would
be embarking on quantitative easing or lowering rates, but the
ECB is more passive in its approach, which is dangerous, and I
think they are walking a tightrope."	
    Against the dollar, the euro was last down 0.6
percent at $1.3064, having hit a three-week low of $1.3033. It
also hit its lowest in four weeks against the yen at
106.86 yen before recovering to trade at 107.58 yen, still down
0.7 percent. 	
    The EURUSD range has been roughly $1.30-$1.35 for 10 weeks
and history suggests that a move following a break of such a
range will be either to the downside to $1.20 or the upside to
$1.45, according to Greg Anderson, G10 strategist at CitiFX, a
division of Citigroup in New York.	
    "The implication for the present moment is that if we see
$1.30 break first, be it next week or any time over the next
couple of months, then we should consider it likely that the
move extend to $1.20," he said. 	
    In the options market, the cost of protection against a fall
in the euro edged higher, suggesting a bit of anxiety about
Spain's debt.	
    Three-month risk reversals in the euro/dollar showed a bias
for euro puts and last traded at -2.00 vols on
Thursday versus -1.90 vols the previous session. The bias
against the euro, however, has been improving since early March
when it reached an extreme level of -2.81 vols.	
    Euro/yen three-month risk reversals also showed a bias for
puts against the e uro a nd last traded at -3.45 vols
, up from -3.09 vols on Wednesday. 	
    The U.S. outlook is increasingly contrasting with Europe, 
several reports reflected on Wednesday. 
    Broad euro selling led the euro to dip below 1.20 Swiss
francs for the first time since the SNB set that level as a cap
for the Swiss currency in September 2011 in a bid to curb a
sharp rise caused in part by investors fleeing the euro.	
    The euro hit a low of 1.1992 francs, according to
Reuters data, before recovering to last trade at 1.2014. Traders
said the SNB was buying euros around 1.20. An SNB spokesman said
the bank would do all it could to defend the cap. 	
    Against the yen, the dollar last traded down 0.1 percent at 
82.38 yen.	
    Traders reported thin market conditions ahead of Good Friday
and the Easter holiday weekend, but the U.S. March nonfarm
payrolls report on Friday could sway sentiment.  	
    The U.S. economy is expected to have added 203,000 jobs last
month after February's 227,000 increase.
    "A strong nonfarm payrolls report would be the dollar's
ticket to push higher, though the full market reaction may have
to wait until early next week when players return from the long
holiday weekend," said Joe Manimbo, senior market analyst at
Western Union Business Solutions in Washington.	
    "A below-forecast employment report would likely see the
buck succumb to profit-taking and lead others to reconsider the
outlook for Fed policy," he said.

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