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Union shows the crack

More Euro volatility ahead (source: WSJ):

More volatility and weakness are in store for the euro this week as European Union leaders debate whether to offer a lifeline to debt-strapped Greece.

Currency traders aren't expecting the EU summit this Thursday and Friday to yield a specific plan to support Greece, but contradictory statements in the run-up to the event will weigh on the currency. Even an agreement may not benefit the euro for long, amid problems of deflation and weak growth.

"Extreme uncertainty" surrounds this week's meeting, said Sebastien Galy, currency strategist at BNP Paribas in New York. "Nothing's going to be resolved that fast," he said, which means the euro is likely to fall further against the dollar and the yen. Since the start of the year, the common currency has lost 5.8% against the greenback.

Ahead of the summit, the Greek government has ratcheted up the pressure, warning that it can't continue to pay the high interest rates the market is demanding and threatening to turn to the International Monetary Fund instead.

The euro zone's position on involving the IMF is in flux: France and the European Central Bank want the solution to be found within the euro zone; Germany, which fears having to pay the bulk of a bailout that would be hard to sell to voters, appears to be more inclined toward drawing in the IMF.

"EU authorities seem to have explicitly broken ranks on the issue of support to Greece," said analysts at UniCredit in Milan.

Stuart Bennett, senior currency strategist at Crédit Agricole CIB in London, sees $1.36 as key for the euro. The euro held above that level for most of last week, but fell as low as $1.3503 Friday as concerns over Greece increased. That could open the way for a fall to $1.3460, he said.

Late Friday in New York, the euro was at $1.3537 from $1.3609 late Thursday. The dollar was at 90.56 yen from 90.35 yen, while the euro was at 122.60 yen from 122.96 yen. The U.K. pound was at $1.5018 from $1.5239.


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