The euro hit a fresh 11-year low versus the yen on Monday and was stuck near a 17-month low against the dollar after Standard & Poor's mass downgrade of euro zone countries late last week.
News of the downgrade came as negotiations between Greece and private creditors on a debt swap deal broke down, raising the risk of a messy Greek default. Markets are also worried the euro zone's bailout fund, EFSF, might lose its AAA rating with S&P as well.
The euro fell 0.4% against the yen to 97.14 yen, and hit a fresh 11-year low of 97.04 yen at one point on trading platform EBS, with traders citing euro selling by Japanese exporters.
Against the dollar, the euro dipped 0.3% to $1.2646 , hovering near a 17-month low of $1.2624 hit last week, and well below an intraday high of $1.2879 that had been hit on Friday.
There was talk of stop-loss offers in the euro at levels around 97.00 yen and $1.2600.
"I think the pressure is going to remain, certainly in the early part of the week. I wouldn't say it came out of the blue, but it knocked what was looking to be a relatively bullish market temporarily back down to the lows," said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore, referring to the outlook for the euro versus the dollar after the S&P downgrades and the snags in the Greek debt talks.
While the possibility of a short-covering rebound in the euro could not be ruled out, any bounce is likely to be limited, Robinson said, adding that the euro faces resistance on hourly charts roughly around $1.2750, near the 55-hour and 100-hour moving averages.
Possible support for the euro lies at the euro's August 2010 low of $1.2588. Below that, trendline support connecting the euro's July 2001 low, early 2002 troughs and its June 2010 low, now lies very roughly around $1.25 or so.
The euro's drop against the yen prompted Japanese Finance Minister Jun Azumi to say that he was worried about the euro's fall, adding that currency moves had been "a little rapid".
"Due to the economic slowdown in Europe, exports to Europe from Japan have been sluggish, suggesting that the magnitude of the currency impact may be somewhat smaller," Citi analysts Osamu Takashima and Issei Suzuki said in a research note.
"Furthermore, European authorities have taken a negative stance on Japan's two most recent unilateral interventions. This suggests that the hurdle for another round of intervention may be high," the Citi analysts added.
Traders have said that market wariness toward the possibility of yen-selling intervention may increase if the dollar were to threaten to breach 75.00 yen. The dollar hit a record low of 75.311 yen late last October, prompting massive yen-selling intervention by Japan.
EURO/SWISS
With the euro on the defensive, some market players were fretting that it may eventually test the Swiss National Bank's euro/Swiss floor of 1.20.
The market has appeared increasingly inclined to test the SNB's resolve to defend the euro/Swiss floor after its governor stepped down last week.
Chairman Philipp Hildebrand resigned on Jan. 9 because he was unable to clear himself of involvement in a currency trade by his wife three weeks before he oversaw the introduction of a cap on the strong franc of 1.20 per euro.
Following Hildebrand's resignation, the SNB said the franc cap policy would be pursued with utmost determination.
"Euro/Swiss is one focal point… There are probably a large amount of stops at levels below 1.20," said a trader for a Japanese bank in Singapore.
While the SNB will probably try to defend the 1.20 floor, the trader said he was keeping an eye on euro/Swiss just in case it were to dip below 1.2000, even if briefly.
The euro held steady versus the Swiss franc at 1.2069 .
With the euro in retreat, the dollar index edged up 0.1% to 81.603, within easy reach of a 16-month peak at 81.784 hit late last week.
The dollar, however, slipped 0.2% against the yen to 76.83 yen, with traders citing dollar selling by Japanese exporters.
