NEW YORK (Reuters) - The euro dropped to eight-month lows against the dollar on Wednesday after an exit poll showed a firm rejection of the European Constitution by the Netherlands, which following a resounding "No" vote by France, raises questions about economic reform in the region.
The exit poll showed "No" votes made up 63 percent of the total, compared with 37 percent in the "Yes" camp. The same survey found that 62 percent of the Dutch electorate cast ballots in the referendum.
By late afternoon in New York, the euro sank to $1.2160 according to Reuters data, after triggering automatic sell orders below $1.22. The euro's decline accelerated as investors rushed out of long positions in the currency.
"The turnout was bigger than projections and the rejection was bigger than expected. I think people were looking for high 50s and it came out at 62 percent," said Ed Stapleton, head of foreign exchange with Fortis Bank in New York.
"It's not looking pretty for the euro right now," he added.
The euro was broadly weaker, falling to a 5-1/2 month low against the Swiss franc, a 9-month low against sterling and a 9-month low against the yen.
Since the year began, the euro has confounded many analysts by declining more than 10 percent against what has turned out to be a resilient dollar, which is strong across the board.
The euro zone currency's recent weakness has caused some Wall Street banks to adjust their near-term forecasts. Merrill Lynch now expects the euro to finish June at $1.27 compared with the bank's earlier forecast of $1.34. Credit Suisse First Boston sees the euro at $1.20 in three months compared with a prior prediction of $1.25.
"We saw the euro suffering on the French vote, and I think even though we expected a 'no' to come out of the Netherlands, the wider than expected margin is important. That adds to the pervading euro gloom," said Lara Rhame, foreign exchange strategist with Credit Suisse First Boston in New York.
HELL FOR THE EURO
Overnight the European common currency dropped after a report that possible failure of the EMU, the system that gave birth to the euro, was discussed at a meeting attended by high-level German financial officials.
The report, in Germany's Stern magazine, led the German central bank to issue a statement that it rules out the failure of the EMU. It added that the officials saw the euro as a "unique success story."
But the market saw otherwise.
"All hell's breaking loose," said John Kosar, president of technical investment firm Asbury Research in Chicago.
"The next level of support is $1.1950 ... I would not be surprised to see us hit this in the next week or two," he added.
Against the Swiss franc the dollar traded up around 1 percent from late Tuesday at 1.2597 francs.
Sterling was down 0.5 percent at $1.8083.
Against the yen, the dollar traded at 108.86 yen, up nearly 0.3 percent and close to 7-1/2 month highs.
In the options market, implied volatility on one-month euro/dollar contracts rose to the highest level since late January.
Volatility jumped to a midpoint of around 9.35 percent on Wednesday from 9.2 percent late on Tuesday, according to Reuters data. That rise in implied volatility reflects the euro's fall into new ranges in the spot market.
Risk reversals, essentially a real-time poll of directional bets on a currency pair, leaned more toward euro/dollar puts. A put option gives the holder the right to sell a currency at a specified price and on a certain date.
Can anyone explain to me why this would be happening? I don't understand much of monetary bullshit
The exit poll showed "No" votes made up 63 percent of the total, compared with 37 percent in the "Yes" camp. The same survey found that 62 percent of the Dutch electorate cast ballots in the referendum.
By late afternoon in New York, the euro sank to $1.2160 according to Reuters data, after triggering automatic sell orders below $1.22. The euro's decline accelerated as investors rushed out of long positions in the currency.
"The turnout was bigger than projections and the rejection was bigger than expected. I think people were looking for high 50s and it came out at 62 percent," said Ed Stapleton, head of foreign exchange with Fortis Bank in New York.
"It's not looking pretty for the euro right now," he added.
The euro was broadly weaker, falling to a 5-1/2 month low against the Swiss franc, a 9-month low against sterling and a 9-month low against the yen.
Since the year began, the euro has confounded many analysts by declining more than 10 percent against what has turned out to be a resilient dollar, which is strong across the board.
The euro zone currency's recent weakness has caused some Wall Street banks to adjust their near-term forecasts. Merrill Lynch now expects the euro to finish June at $1.27 compared with the bank's earlier forecast of $1.34. Credit Suisse First Boston sees the euro at $1.20 in three months compared with a prior prediction of $1.25.
"We saw the euro suffering on the French vote, and I think even though we expected a 'no' to come out of the Netherlands, the wider than expected margin is important. That adds to the pervading euro gloom," said Lara Rhame, foreign exchange strategist with Credit Suisse First Boston in New York.
HELL FOR THE EURO
Overnight the European common currency dropped after a report that possible failure of the EMU, the system that gave birth to the euro, was discussed at a meeting attended by high-level German financial officials.
The report, in Germany's Stern magazine, led the German central bank to issue a statement that it rules out the failure of the EMU. It added that the officials saw the euro as a "unique success story."
But the market saw otherwise.
"All hell's breaking loose," said John Kosar, president of technical investment firm Asbury Research in Chicago.
"The next level of support is $1.1950 ... I would not be surprised to see us hit this in the next week or two," he added.
Against the Swiss franc the dollar traded up around 1 percent from late Tuesday at 1.2597 francs.
Sterling was down 0.5 percent at $1.8083.
Against the yen, the dollar traded at 108.86 yen, up nearly 0.3 percent and close to 7-1/2 month highs.
In the options market, implied volatility on one-month euro/dollar contracts rose to the highest level since late January.
Volatility jumped to a midpoint of around 9.35 percent on Wednesday from 9.2 percent late on Tuesday, according to Reuters data. That rise in implied volatility reflects the euro's fall into new ranges in the spot market.
Risk reversals, essentially a real-time poll of directional bets on a currency pair, leaned more toward euro/dollar puts. A put option gives the holder the right to sell a currency at a specified price and on a certain date.
Can anyone explain to me why this would be happening? I don't understand much of monetary bullshit