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Euro latest drop under $1 called stop on way down

NEW YORK: The euro sank below one dollar for the second time in seven weeks on Tuesday but there was little fanfare this time as dealers expected the year-old currency to stumble further in the coming weeks.

"The question is not whether we will go lower but rather when we will go lower but right now things look fairly quiet," Royal Bank of Canada chief currency dealer Rick Barnett said.

Just three weeks after celebrating its one year anniversary with a spunky rally, the euro sagged back to levels seen late last year when it drifted to 99.88 cents in early U.S. trading on Tuesday, just short of its lifetime low of 99.86 cents set on December 6.

"We broke through an important trendline and so I think that ends any upside for now," for the euro said Roman Dutkewych, technical analyst at Lehman Brothers. "I have been looking for anything back into $1.01 as a selling opportunity for a new move to the downside to unfold here."

To establish any upside potential, dealers said the euro would need to close above $1.0150 and that looks like a far stretch late Tuesday as the euro closed near $1.0010.

"Certainly the euro will eventually drift lower and then there are possibilities for still more losses but is this going to be a huge problem? Probably not," said ING Barings senior vice president John McCarthy.

Last year, dealers blamed the euro's problems on a sputtering European recovery as they eagerly tested the new central bank's tolerance for currency swings.

In early 2000, dealers no longer say that Europe's recovery is not picking up enough steam but rather note that America's economy is simply not running out of it, yet.

"The correlation between the US stock market and the euro is still intact," Royal Bank's Barnett said when euro sales accelerated as hopes the Dow Jones industrial average would erase Monday's 2.16 percent loss rose. The Dow posted a modest 21 point gain at 11029.89.

The Conference Board, a private research group, reported that U.S. consumer confidence soared to an all-time high in January. Separately, the National Association of Realtors said Americans bought existing homes at a record pace last year.

Despite fears the Federal Reserve may shift to a more aggressive tightening mode to prevent economic overheating, most analysts remain certain the Fed can keep inflation at bay, helping the United States roll into a ninth year of expansion.

Making the euro's life even more miserable was the absence of verbal support for the new currency from the world's seven richest nations at their weekend meeting in Tokyo.

And fears that a funding scandal engulfing Germany's opposition Christian Democrats may lead to a more general look at German and French "money politics" also unnerved the market, Warburg Dillon Read analyst Tomas Jelf said.

Despite all of this potential thrust and the stop-loss orders rumoured to be set near 99.50 cents, dealers were again thwarted in their efforts to take the euro much lower.

Rumours that central banks may have been responsible for the euro's slight recovery mixed with talk of large corporate buying and left dealers ready to let it go, for one more day. The market was also awaiting U.S. Federal Reserve Chairman Alan Greenspan's renomination hearings at the Senate Banking Committee on Wednesday

Earlier this month, Greenspan said the Fed was intent on defusing mounting imbalances between supply and demand and would support higher borrowing costs to prevent the booming economy from overheating.

The dollar remained locked in a tight range against the yen, supported by bids from Japanese importers but capped by options-related offers and sporadic selling by Japanese exporters, dealers said.

"Many Japanese exporters are still looking to sell dollars above 106 yen, so the dollar's near-term upside may be limited," said a dealer at a city bank. For now, the dollar/yen rate is likely to take its cue from the euro's rates against the dollar and the yen, he said.-Reuters