Euro weakens from three-month high as debt-crisis optimism wanes

The euro fell for the first time in four days versus the dollar as investors expressed skepticism that the region’s debt crisis is being contained.

The shared currency slid versus most of its 16 most-traded peers as Greece’s coalition failed to reach a deal on 11.5 billion euros ($14.7 billion) of spending cuts. A German court will rule on the nation’s participation in Europe’s permanent bailout fund in two days, when the Netherlands is due to hold elections. Implied volatility of three-month options for Group of Seven currencies fell to an almost five-year low.

“We had a fairly sizable rally in the euro late last week,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said in a telephone interview. “There’s still significant event risk this week, and markets are understandably in a more cautious mode.”

The euro fell 0.4 percent to $1.2760 at 3:42 p.m. New York time, after reaching the highest level last week since May 22. It was 0.4 percent weaker at 99.88 yen. The dollar was little changed at 78.26 yen.

The 17-nation currency’s 14-day relative strength index dropped below 70 after exceeding it on Sept. 7 for the first time since May 2011. A reading above 70 signals an asset may have rallied too far, too quickly and is due for a correction.

Next Level

The euro may rise toward its 200-day moving average, currently at $1.2838, during the next week, according to Michael Derks, chief strategist at FxPro Group Ltd. in London. The shared currency has only traded above the key average on three days during the past year, according to data compiled by Bloomberg.

If the shared currency rises above 100.73 yen, the 38.2 percent Fibonacci retracement level from the 2012 high reached in March, it may gain to 101.40 yen, followed by 101.83, the 200-day moving average and the highest level since May 22, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., said in an interview.

The euro has fallen 3.4 percent this year, the second-worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has dropped 3.7 percent, while the dollar has declined 1.8 percent.

The Norwegian krone weakened against all of its 16 major peers after a report showed underlying consumer prices slid 0.7 percent in August.

The currency dropped 1.2 percent to 5.7908 per dollar.

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