The euro sat tight after surging higher the previous day, as investors waited to see if European Central Bank policy makers meeting later on Thursday would take any measures to alleviate worries over eurozone debt. The euro posted its biggest one-day rise in more than a month on Wednesday, in a dramatic turnaround from 11-week lows against the dollar, as players cut short positions in the hope the ECB might calm the region's debt crisis by taking new steps.
Analysts cautioned there was scope for disappointment, however, saying the central bank was unlikely at this stage to expand its bond purchase programme to support beleaguered peripheral eurozone government debt markets as some might hope. The euro, which jumped more than 1 percent to $1.3183 on Wednesday, eased to $1.3105 on Thursday as players turned more cautious but it remained well above an 11-week low at $1.2969 set on Tuesday.
It was fluctuating either side of its 200-day moving average at $1.3123 and analysts said disappointment could see it resume the fall it began in early November and head back below $1.30. One trader in Singapore said for now, however, there were euro bids from $1.3060 down to $1.30.
"If the ECB decide to do nothing more on bond purchases, that could go down quite badly with European debt markets and the euro," said Mitul Kotecha, global head of FX strategy at Credit Agricole CIB in Hong Kong. "If they open the door at least, it might stem a fall in the euro but markets just want to see some concrete action."
Societe Generale analysts said in a client note if the ECB wanted to stop contagion, it needed to announce a plan of 1 trillion euros or more over the coming quarters, but they thought this was unlikely to happen this week - doubts shared by many market players. The ECB will announce the outcome of its policy meeting at 1245 GMT, followed by a news conference at 1330 GMT.
What analysts see as more likely is for the ECB to agree that it would send the wrong signal if it pushed on with phasing out unlimited liquidity measures right now, as had been expected, and instead for it to possibly add to those liquidity measures to ease strains. The euro's rebound on Tuesday was accompanied by a rally in European equities and peripheral eurozone bonds, which saw Spanish and Irish 10-year yields fall.
If the euro does rise, the trader in Singapore said there were automatic buy orders up in the $1.3190 to $1.3200 region. The euro eased 0.2 percent to 110.36 yen, after rising nearly 2 percent on Wednesday, while the Australian dollar lost 0.3 percent to 81.30 yen.
The Aussie was hit by an unexpected fall in Australian retail sales, which dented hopes for an economic revival in the fourth quarter but it recouped much of those losses to trade at $0.9670, down 0.1 percent on the day. The US dollar was little changed against the Japanese yen at 84.13 yen, not far from a two-month high of 84.41 yen hit earlier in the week.