The euro struggled near a 17-month low versus the U.S. dollar and an 11-year low against the yen on Monday as mass downgrades of euro-zone states threatened the lending capacity of the euro zone's bailout fund and with Greece's future in the bloc unclear.
As Standard & Poor's downgraded nine euro-zone countries, including France, talks between Greece and private creditors on a debt swap deal broke down, raising the risk of a messy Greek default and dousing last week's glimmers of optimism.
The euro's falls were not precipitous, however, with market participants saying the S&P downgrades had been well-flagged, but there were concerns the bloc's EFSF bailout fund may also lose its triple-A rating with S&P.
The euro was down 0.1% against the dollar at $1.2664 U.S., vulnerable to a test of Friday's 17-month low of $1.2624 U.S. Trading volumes were reduced with U.S. markets shut for a public holiday while traders said European Central Bank buying of Italian and Spanish debt had provided some support.
Traders reported an option barrier at $1.2600 U.S. and stop loss orders around that level. A break below there would see the euro target its August 2010 low of $1.2588 U.S.
Trendline support connecting the euro's July 2001 low, early 2002 troughs and its June 2010 low stood around $1.25 U.S. However, analysts said a lack of technical support below there meant the euro could quickly fall towards $1.20 U.S. and the 2010 low around $1.1875 once it falls below $1.25 U.S.
The euro fell 0.4% to 97.18 yen, near an earlier 11-year low of 97.04 yen hit on trading platform EBS, with traders citing euro selling by Japanese exporters. It stopped shy of strong option barrier support at 97.00 yen and large stop-loss orders below.
