The euro nudged up on Wednesday, moving away from a three-week trough marked the day before, as investors covered short positions following its worst two-day fall since May with jitters over Greece's referendum set to cap any bigger gains. The euro was up 0.1 percent at $1.3715, but a seven-week peak of $1.4248 set last Thursday was a distant memory. It hit a session high of $1.3732 with some stop loss points, reported between $1.3720-40, taken out on the way.
Underscoring its vulnerability to headlines from Europe, the euro hit the day's low of $1.3637 after Greek Prime Minister George Papandreou said he would push ahead with a referendum on an EU bailout deal, defying demands from lawmakers of his own party that he quit for jeopardising Greek membership of the euro.
The market is still short euro, and one more corrective move up cannot be excluded, traders said, particularly as more stops lurk around $1.3750-70. Still, offers at $1.3800 were poised to stop any bolder advance, with some traders looking to get short in case the euro entered the $1.3800-$1.3850 area. The eurozone common currency has now retraced roughly half of its short-covering October rally from $1.3145 to $1.4248. The next Fibonacci chart support is seen at $1.3565, a 61.8 percent retracement of that rise.
The options market also indicated a fair amount of pessimism about the euro, with volatility hitting a one-month high on Wednesday, suggesting investors see more need to hedge against any negative events that may come out of Europe. Implied volatility on one-month euro/dollar options, a gauge of expectations regarding a currency's price action, jumped to 16.35 percent from two-month lows of 12.75 percent marked last week. The dollar lost 0.3 percent to 78.13 yen. Japan sold a record of nearly $100 billion worth of yen on Monday, driving the greenback from a record low of around 75.31 yen to a high of 79.55 yen.
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