The euro hit a six-month low against the dollar and a 10-year trough versus the yen Monday, falling below key technical levels and option barriers on worries that the euro zone's support for Greece is wobbling and the country may be forced to default on its debt.
The Australian dollar, sometimes seen as a barometer of market players' risk appetite, tumbled more than 1 percent to a three-week low, below its 200-day moving average, as investors fret that the global economy will be dealt a severe blow if the euro zone debt woes deepen.
The outlook for Greece is almost completely unknown. Support for the country appears to be shaking. The market is starting to think the worst could happen, said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking.
It's as if policymakers are starting to prepare for that, Kitakura said.
The common currency fell as low as $1.3550, its lowest since late February, before stabilizing around $1.3587, still down 0.5 percent on the day. It dropped below $1.3655, a 61.2 percent retracement of its rally to $1.4940 in May from $1.2860 in January.
The euro fell to around 104.90 yen, having broken below big option triggers at 105 yen as more negative news flow from Europe over the weekend hit already shaky sentiment.
Fears about a Greek default rose after senior politicians in German Chancellor Angela Merkel's center-right coalition started talking openly about it.
This came on top of Juergen Stark's surprise departure at the European Central Bank last week, which has highlighted major disagreement among top policymakers on how to tackle the region's debt problem.
Markets are also bracing for possible ratings downgrade on France's top banks, as well as Italy's sovereign rating. Moody's warned on June 17 that it may cut Italy's credit ratings in the next 90 days.
By Friday at the latest, it is likely Italy will have their Aa2 rating from Moody's lowered ... Moody's rating of Italy is currently two notches below AAA, compared with three notches with Fitch and four notches with S&P, this can be seen as catch-up, Richard Kelly, head of European rates and FX research at TD Securities wrote in a note.
In the very near-term, the euro could be oversold, trading way below the lower Bollinger Band, now at $1.3711. Its 14-day relative strength index has fallen below the 30 mark, which is considered to be oversold territory, for the first time in more nine months.
Still, the euro looks vulnerable, especially against the yen, after having fallen below its 2010 low around 105.50 yen to hit its lowest in more than 10 years.
The euro held little changed against the Swiss franc at 1.2055 franc, above the 1.20 franc floor the Swiss central bank set last week.
With the Swiss franc no longer a safe harbor due to Swiss National Bank selling, and the yen also dogged by the danger of intervention from Japan's authorities, the greenback became the best performer among major currencies.
The dollar index rose as high as 77.521, its highest in more than six months.
Against the yen, the dollar was at 77.49, holding near a one-month high around 77.88 set on Friday.
For now, your best bet is a higher U.S. dollar against most currencies, but in particular against the euro and the commodity currencies, said Joseph Capurso, strategist at Commonwealth Bank in Sydney.
Indeed, commodity currencies were under pressure on Monday with the Australian dollar falling more than 1 percent to a three-week low around $1.0363, having fallen below its 200-day moving average of $1.0383.
While the Aussie did recover from its briefly foray below the average last month, a large amount of long positions accumulated over many months thanks to its yield advantage point to risk of more unwinding.
According to the data from the U.S. financial watchdog, speculators at the Chicago exchange held on to a large net long position in the Australian dollar of around A$4.8 billion.
Trading was choppy with volumes likely to be thinner than usual as several centers in Asia, including China, are closed for a holiday.
(Additional reporting by Ian Chua in Sydney; Editing by Chris Gallagher)