LONDON, Aug 21 - The euro tumbled more than one percent against the dollar and the yen on Thursday to hit levels not seen since April as investors bailed out of the single currency on the view it would underperform in a global recovery. The break through key technical levels accelerated the euro's downmove, knocking it below $1.10 and 129.50 yen as momentum traders piled on the bandwagon. "The break of $1.1046 -- a level that has been repeatedly tested in the last couple of days -- kicked things off, but the economic picture has been building for weeks," said Ian Gunner, head of foreign exchange at Mellon Financial Corp.
"The euro looks extremely vulnerable on the charts and strong U.S. data this afternoon could trigger another wave of selling." U.S. weekly jobless claims and a manufacturing survey from the Philadelphia Federal Reserve, due later in the session, are expected to reinforce the view that the U.S. economy is gathering momentum. Signs of strength in global stock markets also sent the safe-haven Swiss franc to a four-month low against the dollar . But the greenback retained a soft bias below 118 yen as investors viewed Japan's export-oriented economy as potentially an even bigger beneficiary of a global upswing.
CHART BREAKS
The euro has now fallen nearly 10 cents from record highs against the dollar scaled in May and retested in June. The move through $1.1045/50 -- the 61.8 percent Fibonacci retracement of the euro's rally from $1.05 to above $1.19 in the first half of the year -- triggered a wave of automatic sell orders. "We've broken through a technical level at $1.1045 and hit stops," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. "The move is generally triggered by the same theme we've seen in recent weeks -- upbeat sentiment on U.S. data and signs of a shift out of bonds into equities." The Nikkei stock index <.N225> climbed to its highest for a year on Thursday while government data showed foreign investors poured funds into Japanese shares for the 18th straight week. Traders said the euro/yen cross was particularly sensitive to global recovery trades with investor nervous of pushing the yen higher against the dollar for fear of prompting dollar-buying intervention from Japanese authorities.
Further losses in government bond markets also weighed on the euro which has been seen as the biggest beneficiary of the three-year bond boom. "The popular trade at the start of the year was to go long euro zone government debt unhedged," said Steven Pearson, chief currency strategist at HBOS Treasury Services. "In an environment of a global economic upswing this is the wrong trade to have and we are seeing an outflow of capital from euro zone bonds."//