The euro dipped on Friday but held onto most of its recent gains on budding hopes that Ireland is near a deal to shore up its banks and budget deficit, while the Australian dollar slipped as Chinese shares came under pressure.
The euro briefly got a marginal boost after Federal Reserve Chairman Ben Bernanke gave a full-throated defence against criticism of the bank's controversial bond-buying programme, showing no signs of backing away from implementing the plan.
Worries that China may adopt more stringent measures to keep a lid on inflation, including a drastic rise in key interest rates, dragged shares in Shanghai and Hong Kong lower and weighed on the Australian dollar, which fell 0.5 percent on the day to $0.9847.
The euro was clinging to most of the gains it built up since bouncing from Tuesday's seven-week low, trading at $1.3628 down 0.1 percent on the day but up more than 1 percent from Tuesday's trough around $1.3446 on trading platform EBS.
"I feel that the worst for the euro is over," said a trader at a US bank. With its fall to a seven-week low, the euro had given back half of its gains from late August to November 4. "The last time the euro was in an adjustment, in August, it rebounded after achieving a 50 percent retracement," the trader added.
The euro's drop earlier in the week stalled right above $1.3436, the 50 percent retracement of its August to November rally. The single currency still needs to get above resistance at $1.3750/1.3785, however, to put an end to the downward correction of the last couple of weeks.
The euro fell 0.3 percent to 113.60 yen, recovering from the week's low of 112.27 yen hit on Tuesday. The dollar eased 0.2 percent to 83.39 yen but remained in sight of a six-week high of 83.79 yen marked on Thursday, helped by upbeat US economic data showing factory activity in the Mid-Atlantic region accelerated in November, and by a closely watched gauge of jobless benefits falling to a two-year low.
"It's just a case of continued position unwinding before Thanksgiving," said a trader for a Japanese bank, referring to the dollar's recent rise against the yen. A drop in dollar/yen option volatilities also lent support to the greenback, which may test 85 yen next week, the trader said.
Short-term dollar/yen option volatilities have fallen ahead of next week's Japanese and US holidays. They were also pressured by the yen's drop on crosses on Thursday, said an options trader for a major Japanese bank. The bid rate for one-month dollar/yen implied volatility fell to 9.75 percent at one point on Friday, the lowest in more than six months, according to Reuters data.
The dollar faces resistance in the 83.80 yen to 84.00 yen area, right around the top of a downtrend channel and the dollar's October 5 high of 83.99 yen. A clear breach of 84.00 yen could open the way for a rise to 85.00 yen. Sparking hopes of imminent aid for Ireland's shattered banks, central bank governor Patrick Honohan said he expected Dublin to receive tens of billions of euros in loans from European partners and the IMF to provide stand-by funds.
Fed chairman Bernanke also reiterated the case for the Fed to act now in the text of a speech for delivery to a conference at the European Central Bank in Frankfurt later in the day. The text was released ahead of his scheduled Friday appearance. While there was little surprising in Bernanke's comments, some traders said they helped to push down the dollar as they showed no signs of budging on quantitative easing despite growing frustration over the policy both at home and abroad.
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