The euro edged up on Wednesday, rebounding from a three-week low against the dollar as investors took a breather from a deep sell-off in the past two days, although it was vulnerable to the downside on jitters over Greece's referendum. The euro was up 0.45 percent at $1.3756, pulling away from the three-week low of $1.3608 struck on Tuesday on a bout of short covering by real money investors and speculators.
It rose to a session high of $1.3803 on trading platform EBS, with near term resistance around $1.3845-the 50 percent retracement of the euro's drop from its August 29 high of $1.4550 to a low of $1.3145 on October. It failed to hold gains above $1.38 with weak manufacturing PMI data from Germany, France, Italy backing views that the eurozone is tipping towards a deep slowdown and compounding the euro's struggles. "After yesterday's sell-off, some bounce was expected but we think there are a lot of hurdles for the euro to clear and given the risk events, we do not see it rallying much," said Adam Myers, senior currency strategist at Credit Agricole.
The euro had dropped to the day's low of $1.3637 after Greek Prime Minister George Papandreou said he would push ahead with a referendum on an EU bailout deal, defying demands from lawmakers of his own party that he quit for jeopardising Greek membership of the euro.
The options market also indicated a fair amount of pessimism about the euro, with volatility hitting a one-month high on Wednesday, suggesting investors see more need to hedge against any negative events that may come out of Europe. Implied volatility on one-month euro/dollar options, a gauge of expectations regarding a currency's price action, jumped to as high as 16.35 percent according to Reuters data, from two-month lows of 12.75 percent last week. The dollar lost 0.4 percent to 78.01 yen. Japan sold a record of nearly $100 billion worth of yen on Monday, driving the greenback from a record low of around 75.31 yen to a high of 79.55 yen.