The euro held steady against the dollar on Tuesday, pulling away from a seven-week low hit the previous day, but downside risks persisted after its recent breach of a technical support level and due to the lingering threat of further long liquidation. The euro also remains vulnerable due to concerns about the debt of countries on the euro zone's periphery, although it gained some reprieve on Monday after euro zone finance ministers approved an emergency loan programme for Portugal.
"It does seem like it (the euro) has stopped a little bit but it still looks heavy," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo. "If we see a further drop in commodities, the euro could make a try for $1.40," Fukaya said, adding that some investors seem interested in buying the euro at levels around $1.40. The euro held steady at $1.4160, holding above a seven-week low around $1.4048 hit on Monday on trading platform EBS.
The euro had rallied to a 17-month peak near $1.4940 in early May, buoyed by market expectations that the European Central Bank would raise interest rates further in the coming months, while the Federal Reserve is expected to keep interest rates near zero this year. Renewed concerns that Greece may restructure its debt have also dented the euro and tempered the appetite for risk.
The yen fell broadly, with the dollar rising 0.6 percent to 81.30 yen and the euro climbing 0.6 percent to 115.15 yen, pulling away from a two-month low near 113.40 yen hit on Monday. Traders said the dollar's rise against the yen gained momentum after stop-loss bids were triggered in thin market conditions, with markets in Singapore and several other Southeast Asian countries shut for a holiday.
A trader for a Japanese brokerage house also cited talk of yen selling by Japanese investment trusts, while other traders said the yen came under pressure after a source familiar with the matter said Japanese electronics conglomerate Toshiba Corp was close to finalising a deal to buy Swiss-based smart metering company Landis+Gyr for about 200 billion yen ($2.5 billion).
In a bearish chart signal for the euro, the single currency broke below support at the top of the daily Ichimoku cloud late last week. Its next support on the daily Ichimoku chart lies at the bottom of the cloud, now at $1.3974. The $1.39-40 region is regarded as a significant area for the euro. There has been talk this week of stop-loss euro offers at levels around $1.40. In addition, a series of euro support levels are clustered in that region, including the 100-day moving average near $1.3933.