TOKYO: The euro faltered on Wednesday, edging back towards a 10-month low as macro funds and Tokyo exporters piled pressure on the currency by taking profits after an overnight rally.
Chart levels suggested, however, that recent heavy selling could ease for the time being.
European finance ministers agreed on Tuesday to safeguard their banks as doubts grew about whether a planned second bailout package for debt-ridden Greece would go ahead.
Underscoring the fragility of risk sentiment, Asian bourses failed to take cues from a late rally on Wall Street, prompting macro funds to continue unwinding positions funded in the dollar and yen.
As a result, the euro dipped 0.5 percent to $1.3282 , not far from a nine-month low of $1.3145 plumbed the day before. It also slid towards a decade low on the yen, shedding 0.8 percent to 101.82 yen .
"Macro funds are trying to offset some of the huge losses made on stocks this year by taking profits or cutting losses on their positions in the euro and the Aussie," said Tsutomu Soma, senior manager at Okasan Securities' foreign securities department in Tokyo.
Soma suggested that despite the heavy selling, a brief corrective rally in the euro to around $1.34 could not be ruled out after the currency on Tuesday bounced from levels, which, had they been breached, would have signaled an acceleration of its decline.
The euro jumped from above key support at $1.3140 -- a 76.4 percent retracement of a rise from its $1.2583 Aug 2010 low to this year's high above $1.49.
"The long-term downtrend is clearly unchanged, but the euro's fall has been interrupted by rounds of short-covering and we may see some of that later in the day," Soma said.
Echoing this view, analysts at BNP Paribas said better two-way trades in euro/dollar and euro crosses looked possible in the days ahead, although they warned the euro could still fall below $1.3000.
Stops losses were seen around $1.34, while a thick layer of offers was poised to cap any rebound in euro/yen around 103 yen.
The single European currency's bounce came after France and Belgium rushed to the aid of Dexia SA , in what will be the first state rescue of a European bank in the euro zone sovereign debt crisis.
But traders doubted that the move by European officials could stave off a further decline in the euro.
"The bottom line is there is still going to be a lot of safe-haven bidding for the US dollar because the world economy has slowed appreciably," said Joseph Capurso, a strategist at Commonwealth Bank in Sydney.
FURTHER STEPS
Federal Reserve Chairman Ben Bernanke helped lift risk sentiment by saying the US central bank was prepared to take further steps to bolster the US recovery.
Although the dollar index dipped to 79.236, retreating from a nine-month high of 79.838, most market players agreed that safe-haven inflows were likely to boost the greenback and outweigh any selling on speculation that the Fed may ease monetary policy again.
The dollar drifted down to 76.65 yen , above Tuesday's low around 76.51 yen. The currency pair remained tethered in a narrow band, trapped by the threat of more yen-weakening intervention by Japanese authorities.
The Australian dollar fell 0.6 percent against the yen, at one point dipping as low as 72.64 yen , with macro funds unwinding their positions funded in the yen, largely ignoring positive retail sales numbers.
It slipped 0.2 percent versus the dollar to $0.9530 , not far from a one-year low of $0.9388.
There was little reaction to Moody's move to slash Italy's bond rating by three notches to A2, which brought it in line with Standard & Poor's.
However, a Moody's analyst later said Italy's credit rating could come under further downward pressure if the euro zone's debt crisis is not resolved and access to long-term funding is diminished.
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