The euro was down 0,4% against the dollar at $1,3638, more than a cent off an earlier one-week high of $1,3786, when it pierced the 38,2% Fibonacci retracement of its November 4-18 fall at $1,3765. The euro fell against the dollar on Monday as brief optimism after Ireland sought a bailout gave way to concerns about possible contagion to other highly indebted eurozone states. The euro’s fall coincided with a rise in the premium investors demand to hold Irish government bonds rather than benchmark German debt, reversing an earlier fall, after the country’s junior coalition party called for fresh elections. The call by Ireland’s Green Party for a January election raised fresh political uncertainty over the country’s outlook. The euro’s fall accelerated after an Irish independent government lawmaker said he was unlikely to support the country’s 2011 budget. But many just worried the European/IMF rescue package might not be effective in the long term and would not stop markets from targeting fellow straggler Portugal. "The risk of Ireland is somewhat off the table, but it puts the risk onto Portugal and possibly Spain, which represents much bigger risk for the euro," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. The call for an Irish election also "raises the risk for straight austerity measures being implemented with the risk the government is unable to implement the fiscal tightening measures necessary for the budget deficit," Esiner said. Rating agency Moody’s said a "multi-notch downgrade" on Ireland was now likely. The euro was down 0,4% against the dollar at $1,3638, more than a cent off an earlier one-week high of $1,3786, when it pierced the 38,2% Fibonacci retracement of its November 4-18 fall at $1,3765. The move lower on Monday breached the 23,6% Fibonacci retracement support level. "The market is skeptical as there are still fiscal issues with Portugal and Spain. Investors have been undecided on the euro for a while now and I can see that uncertainty lasting into year-end," said Jane Foley, senior currency strategist at Rabobank in London. Data from the US Commodity Futures Trading Commission on Friday highlighted uncertainty as speculators more than halved net euro/dollar long positions to 8 606 contracts last week from 23 283 the week before. The size of European Union and International Monetary Fund aid for Ireland has yet to be decided, but is likely to be smaller than Greece’s €110bn bailout last May. A senior EU source said aid could total €80bn to €90bn. The euro also cut gains against the yen to trade down 0,2% at ¥113,87, while the US dollar index rose 0,1% to 78,584. Dealers said trade was thin partly due to a Japanese market holiday on Tuesday and a US market holiday on Thursday. The greenback was up slightly versus the yen at ¥83,50, with its surprise rebound this month from a 15-year low of 80,21 keeping many traders positive in the near term. Traders said options expiries on Monday, reportedly at 83,00, 83,15, 83,25 and ¥83,50, may keep it hemmed in a tight range.

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