TOKYO: The euro held its ground in Asia on Tuesday but faces pressure later this week ahead of Italian and Spanish debt auctions.
The euro stood at $1.2767 after an overnight bounce off a 16-month low of $1.2666. Traders said buying ahead of a $1.2650 option barrier prompted some short-covering as Japanese traders returned after a holiday.
The single currency was also nearing strong support seen just below $1.2600, a 76.4 percent retracement of its rally from June 2010 to May 2011 and its trough on August 24, 2010. On the upside, stop-loss bids were cited above $1.2790 and $1.2800.
With euro net short positions at a record, according to the latest data from the Commodity Futures Trading Commission, the euro remains susceptible to short-covering.
"With so many euro short positions already, there is only so far that the euro can be pushed down before short-covering gives it some temporary respite," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.
Short covering also helped lift the euro against the yen. It was buying 98.09 yen, up from an 11-year trough of 97.28 yen hit overnight.
But the euro remained under pressure ahead of a Spanish debt auction and a European Central Bank policy meeting on Thursday, and an Italian debt auction on Friday.
The ECB is expected to press governments to step up their efforts to tackle the debt crisis.
Spain will launch a new three-year bond alongside sales of two existing bonds while Italy is also expected to announce an auction of bonds maturing in 2015 and may add other lines.
The Italian and Spanish auctions will be the main focus of a busy supply schedule this week, which will also include sales from triple-A issuers Germany, the Netherlands and Austria. Fears over the euro zone debt crisis have prompted commercial banks to stash money at the ECB rather than lend to each other. Overnight deposits at the ECB hit a new record of 464 billion euros, figures on Monday showed.
Germany and France warned Greece it would get no more bailout funds until it agreed with creditor banks on a bond swap.
Adding to market gloom, China's exports and imports grew at their slowest pace in more than two years in December as both foreign and domestic demand waned.
The rebound in the euro saw the dollar retreat 0.1 percent against a basket of major currencies to 80.947. The greenback was little changed on the yen, however, at 76.83 , having recently fallen from levels near 78.00.
While the euro rose against many currencies, it lost ground on the Swiss franc after the resignation of the head of Switzerland's central bank prompted talk the market could test the bank's resolve to cap the currency at 1.2000 euros.
The euro stood at 1.2111 francs, having fallen as low as 1.2097, its weakest in nearly four months. SNB watchers said interim central bank chief Thomas Jordan is likely to continue the current SNB policy.
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