The euro held its ground in Asia on Tuesday but faces pressure later this week ahead of Italian and Spanish debt auctions. The single currency stood at $1.2767 after an overnight bounce off a 16-month low of $1.2666. It climbed to a session high of $1.2797 on stop-loss bids above $1.2790, but fell short of stops said to lie around $1.2800. Buying ahead of a $1.2650 option barrier prompted early short-covering as Tokyo traders returned after Monday's Japanese holiday.
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.
The single currency has 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. Short covering also helped lift the euro against the yen. It was buying 98.24 yen, up 0.4 percent, moving away from an 11-year trough of 97.28 yen marked 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 offering on Friday. The ECB is expected to press governments to step up their efforts to tackle the debt crisis.
The rebound in the euro led the dollar to retreat 0.3 percent against a basket of major currencies to 80.814. The greenback was little changed on the yen, however, at 76.80, having recently fallen from levels near 78.00. The Aussie gained 0.7 percent to $1.0314, while also rising to a new high against the euro, which was buying A$1.2400. The euro also slipped to a record low against the New Zealand dollar of NZ$1.6083 and bought NZ$1.6111, down 0.5 percent.