[SINGAPORE] The euro slumped to new lows against the US dollar and the Singapore dollar yesterday as flames from the eurozone crisis licked Spain's banking sector and burnt economic confidence in Europe.
The common currency might just slide further, with market watchers expecting bad news from the region to continue exerting downward pressure.
The euro broke the psychological US$1.25 mark and slipped past support levels to reach US$1.2427 at 7pm yesterday, according to Bloomberg data. That was a new low in almost two years, approaching the US$1.1924 trough in June 2010.
The euro also breached the key S$1.60 level to hit S$1.5939 - a low in more than 10 years.
Worries about the health of Spain's banking sector continued to sour sentiments yesterday. Spain's borrowing costs soared on talk that the European Central Bank (ECB) had rejected plans to recapitalise Bankia, one of the country's largest lenders. ECB later denied the rumours, saying that the Spanish government had not consulted it on any plans.
"Spain remains the key worry for the eurozone debt crisis, eclipsing optimism in Greece that the pro-bailout conservatives are leading the polls ahead of next month's election," said DBS Bank senior currency economist Philip Wee in a note.
The long drawn debt saga has hit economic confidence in Europe sharply, with indicators released by the European Commission yesterday showing larger than expected falls. Gauges of sentiment across the manufacturing, services and construction industries dropped.
"A further deterioration in economic confidence surveys in May will only serve to highlight the growing growth disparity between the eurozone and US," said Crédit Agricole global FX strategy head Mitul Kotecha.
Mr Kotecha is among those who think there is still some way for the euro to slide. A test of technical support at around US$1.23 is on the cards, he said.
IG Markets Singapore research head Justin Harper is expecting the euro to fall further in the short term - even though most of the risk from the upcoming Greek election should have been priced in, cracks are appearing in Spain's banking sector. "There are too many negatives" and the euro will struggle to get back above US$1.25, he said.
Mr Wee from DBS believes that "as far as the eurozone crisis is concerned, the market does not see the light at the end of the tunnel".
While analysts are pessimistic about the euro's near term prospects, a fair number of traders seem to be waiting for a bounce. IG Markets' data shows that 54 per cent of its clients around the globe have long positions in the euro. At Oanda, that figure is just above 57 per cent.