The euro was steady on Friday but was vulnerable on the downside after European leaders sought to play down expectations of progress on the eurozone's debt crisis this weekend, with investors still keen to sell it on rallies. Deep divisions between France and Germany over the best way to bolster the regional bailout fund's firepower sent the common currency lower against the safe-haven Japanese yen and Swiss franc.
Failure to agree on leveraging the EFSF will hurt confidence in the eurozone's ability to manage its debt crisis after nearly two years of trying to get on top of a problem that started in Greece and now threatens to engulf major economies Italy, Spain and even France.
Investors were hoping European leaders would make progress at a summit on Sunday, but France and Germany said no firm decisions will be made until a second meeting on Wednesday, increasing investors' scepticism over policymakers' ability to dig the eurozone out of its deepening crisis. The euro was flat against the dollar at $1.3780, recovering from a session low of $1.3704, but was on track for its first weekly loss in three weeks. Still, it has held above its nine-month low hit in early October, with the common currency lifted in part by paring back of some of the extreme bearish positioning by speculators.
"The euro is being driven by short-term players with longer-term investors like asset managers all holding short positions and on the sidelines," said Manuel Oliveri, currency strategist at UBS in Zurich. Traders said there were decent offers to sell the euro around $1.3785-95 with sizeable sell orders from Asian investors above $1.3820. On the downside, the euro may find support at $1.3700, with plenty of euro bids said to be lurking at levels between $1.3700 and $1.3650.
Below those levels, further support looms at the 100-week moving average at $1.3669 briefly breached on Thursday, while $1.3650 marks two daily lows hit earlier this week with Asian sovereign bids around the level. Reflecting the short-term volatility in the common currency, euro/dollar implied vols were trading around two-week highs. One-month vols was trading around 15.75 percent, up from 15.50 percent on Thursday with risk-reversals still showing downside risks for the euro.
Against the yen, the common currency fell 0.2 percent to 105.66 yen, while against the Swiss currency the euro was down 0.4 percent at 1.2268 francs. The greenback was down 0.2 percent on the yen, last changing hands at 76.68, while the dollar index was down 0.2 percent on the day at 76.816.