The euro bounced back from a 2-week low on short-covering on Tuesday, though simmering fears that some eurozone countries and banks could face more borrowing strain are likely to limit gains. Comments from a Chinese vice premier that China supports efforts by the EU to calm global markets in the wake of Europe's debt crisis were enough to trigger a short-covering rally in holiday-thin trade.
The euro rose 0.3 percent on the day to $1.3172, extending its rebound from Monday's trough of $1.3094, its lowest level since December 2. In a positive sign, the currency has managed to crawl back above its 200-day moving average, now sitting at $1.3102. But the euro struggled to break above resistance around the $1.3165-80 zone, which had been major support for the currency earlier this month.
Many market players think pressure will remain on the euro as a number of investors fret that the debt crisis that engulfed Greece and Ireland could spread to Portugal and Spain early next year. Spain needs to repay about 15 billion euro in April. For now though, the market may look to Spain's treasury bills auction later in the day - the last debt auction this year from a struggling member of the eurozone.
The next possible downside target for the euro is seen at $1.2969, a trough hit on November 30. The euro also stayed within striking distance of a low of 1.2636 Swiss francs marked on trading platform EBS on Monday, its weakest since the euro's launch in 1999. It was last quoted at 1.2680 franc, up 0.1 percent on the day. Technically the euro/Swiss could target 1.2540 franc in the near future.
In addition, signs of a housing bubble in Switzerland have alarmed the country's central bank, which has maintained interest rates very low, marginally helping the franc. The single currency also stood just above a record trough against the Australian dollar. The Australian currency rose 0.3 percent against the dollar to $0.9965, returning to an uptrend after hitting a low of $0.9830 late last week.
A possible near-term target is $0.9980, a 76.4 percent retracement of its pullback last week from above parity. The Aussie moved little after the minutes from the Reserve Bank of Australia's policy meeting confirmed the central bank is in no hurry to raise rates. The US dollar slipped a tad against the Japanese yen, tracking the dollar's fall against the euro, though many traders see little incentive in either direction in the pair, which has been stuck in a narrow trading range in the past month. The dollar fell 0.1 percent to 83.66 yen but strong support is seen at around 82.80 yen, its low last week. The Bank of Japan kept monetary policy steady as widely expected on Tuesday, holding off on easing as expected.