SINGAPORE: The euro fell against the dollar on Wednesday and floundered near a record low versus the Australian dollar in cautious trade a day ahead of a European Central Bank policy meeting and debt sales from Spain.
The euro stood at $1.2738, down 0.3 percent from late US trade on Tuesday, having bounced off a 16-month trough at $1.2666 set on Monday on trading platform EBS . Resistance is seen at the overnight high around $1.2820, a level representing the 38.2 percent retracement of the Jan. 3 to 9 decline.
The single currency dipped to as low as $1.2729 at one point, as the market took out stop-loss offers near $1.2740.
Still, there was talk of bids below $1.2700 and also an option barrier at $1.2650, which suggests the euro may attract bids from option players if it approaches that level.
Against the yen, the common currency dipped 0.2 percent to 97.99, not far from an 11-year low of 97.28 set on Monday on EBS.
"It looks like the amount of short positions held by short-term players has decreased and a test of the upside might be tough," said a trader for a Japanese bank in Singapore, referring to the outlook for euro/yen.
Traders may be looking to re-enter short positions in euro/yen, while Japanese exporters have probably fallen behind in their selling of euro/yen, he said.
While the euro is susceptible to bouts of short covering, some analysts do not expect any significant bounce similar to the one seen last year when the euro surged from $1.2860 in January to $1.4940 in May.
Market players continued to express their negative view on the euro by selling it against commodity currencies . According to Reuters data, the euro hit another all-time low versus the New Zealand dollar at NZ$1.6015 and a one-year low against the Canadian dollar at C$1.2956.
Against the Australian dollar, the euro stood at A$1.2385, near a record low around A$1.2355 hit on Tuesday.
COMMODITY CURRENCIES
"Commodity currencies and high beta currencies continue to outperform, due to a rising realisation that the ECB is facilitating greater and sustained liquidity in the market," analysts at Societe Generale wrote in a client note.
"This comes on the back of a similar theme from the Fed, such that markets are indifferent between EUR and USD funding at this point, leaving the currency pair in a range."
The Australian dollar slipped 0.3 percent against the US currency to $1.0281 after having rallied over the previous two days. The Aussie had risen to as high as $1.0352 on Tuesday, a 2 percent rally from Monday's low of $1.0145.
"Part of the reason why the Aussie has put on two cents in the last few days is the view that China is going to further loosen policy, which eventually is going to be good for Australian commodity products," said Joseph Capurso, strategist at Commonwealth Bank in Sydney.
"But I think that's overdone and won't be surprised to see the Aussie ease back for the reminder of the week."
Traders generally expected the market to be cautious as the ECB policy meeting and debt sales from Spain loomed. Italy will also tap the bond market on Friday.
The ECB is expected to hold rates at a record low of 1.0 percent and press governments to step up their efforts to tackle the euro zone debt crisis. Traders said there is a chance it may cut rates again.
"There is a good chance they will go this month or sometime over the next couple of months. Europe is in recession and they haven't fixed their debt crisis," Capurso added.
The dollar rose 0.1 percent against the yen to 76.92 , staying above a two-month low of 76.30 yen hit last week.
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