Euro Touches 4-Month Low as Schaeuble Says Crisis to Last

The euro touched a four-month low and fell for a third straight week against the dollar as German Finance Minister Wolfgang Schaeuble said Europe’s financial-market turmoil may last another two years.

The 17-nation currency reversed its losses today as a technical indicator signaled its recent decline came too fast. The dollar and yen posted weekly gains against most of their major counterparts as investors sought safer assets. The euro declined for a fourth week versus the yen as a meeting of Group of Eight nations’ leaders began.

“The financials in European countries have been hammered, and that has put more pressure on the situation, but it feels a little bit exhausted,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “You can see that the commodity currencies are down, with both the Aussie and the kiwi being sold off. Normally that happens when things are getting more defensive and people are taking risk off the table.”

The euro slid as much as 0.4 percent to $1.2642, the weakest since Jan. 16, before rising 0.7 percent to $1.2780 at 5 p.m. in New York. It declined 1.1 percent this week. The shared currency rose 0.3 percent to 100.98 yen, trimming its drop this week to 2.2 percent, the most since the period ended April 6.

The yen rose against the dollar, erasing an earlier loss, and reached 79.00, the strongest level since Feb. 17. A short is a bet the price of an asset will fall, while a long is a bet it will rise.

‘Yen Exposure’

“The market is slowly, almost reluctantly, being forced to build some long yen exposure,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “The positioning that’s clear-cut in the short-term players is euro short and dollar longs. With the yen, they’ve been forced to cut their short positions and have slowly been building long positions.”

Hedge funds and other large speculators increased their bets on a weaker euro to 173,869 in the week ended May 15, the highest since the common currency’s inception in 1999, according to Commodity Futures Trading Commission data. Futures traders decreased the number of short yen positions to 34,315 from 41,093.

The Australian and New Zealand dollars tumbled against the greenback and yen. The Aussie fell 0.6 percent to 98.25 U.S. cents and touched 97.95, the lowest level since Nov. 28. It fell 0.9 percent to 77.68 yen. The kiwi dropped 1.2 percent to 75.43 U.S. cents and 1.5 percent to 59.62 yen.

Europe’s Crisis

Europe being in crisis has become “practically normal,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said.

German Chancellor Angela Merkel and fellow European leaders will face pressure from their G-8 counterparts to do more to quell the turmoil after speculation Greece will exit the euro wiped almost $4 trillion from global stock markets this month.

Fitch Ratings lowered Greece’s ranking to CCC from B-, saying the strong showing of “anti-austerity” parties in elections on May 6 and subsequent failure to form a government underscored the lack of public and political support for the country’s bailout from the European Union and International Monetary Fund.

Moody’s Investors Service yesterday lowered the credit ratings of Spain’s biggest banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, citing economic weakness and the government’s mounting budget strain.

‘Contagion to Spain’

French President Francois Hollande said today Spanish banks should be recapitalized with Europe’s aid, contradicting European Union Economic and Monetary Commissioner Olli Rehn, who said the country can do that on its own.

“Greece is in trouble and that is pushing the euro lower,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “The real issue is contagion to Spain. The markets can probably start to stabilize sometime soon, there is a lot of bad news priced in and we are near a lot of key technical levels in euro-dollar.”

The 14-day relative strength index for the euro against the dollar fell to 21 yesterday, the lowest since October 2008, before rising to 31.4. It was below the “oversold” 30 level on every day this week before today.

‘Short the Euro’

“Everyone seems to be short the euro here -- it’s a very popular trade -- so it is vulnerable to a pop to shake out the week’s shorts,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York.

The euro has dropped 5 percent in the past year, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swedish krona. The yen is the best performer, strengthening 9 percent, and dollar gained 6.8 percent.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.4 percent to 81.084 after rising on the previous 14 days, the longest such streak since its inception in 1973.

The Dollar Index’s “rally phase” is here to stay, according to Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York.

“There is still little evidence of a reversal,” O’Connor wrote in a note to clients today. The gauge must fall below the key support level of 80-80.33 to reassert the short-term downward bias, he said. Support refers to an area where buy orders may be clustered.

Loonie Falls

Canada’s dollar declined after earlier posting its first advance of this week versus its U.S. counterpart as consumer price inflation rose 2 percent in April from a year ago, compared with a 1.9 percent gain the prior month, according to Statistics Canada.

The loonie, as the currency is known, declined 0.3 percent to C$1.0222 per U.S. dollar, extending its decline this week to 2 percent.

The yen has risen versus all of its 16 major counterparts this week as a report from the Federal Reserve Bank of Philadelphia yesterday showed its general economic index unexpectedly fell to the lowest since September.

“The global market remains nervous,” said Kikuko Takeda, a senior currency economist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “We can’t buy the euro, and if the U.S. economic outlook is uncertain, yen will be bought.”

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