The euro dipped on Thursday, taking a breather after rallying to a one-month high the previous day, with market players saying the single currency may eke out more gains ahead of a European Union summit next week.
The Australian dollar hit a three-week high as strong jobs data prompted investors to scale back expectations for a cut in interest rates in the near term, but the currency's rise stalled right at resistance in the $1.0235 to $1.0239 area.
The yen inched higher as Japanese exporters sold dollars and cross/yen after the dollar and the euro both touched one-month peaks against the yen the previous day. Market players said the euro and risky assets may have a little more room to rise due to the potential for further short-covering by investors that had taken very bearish positions, but were sceptical that there would be a sustained rally.
"I don't think it's completely over, but there is no reason for the euro to become drastically stronger," said Tsutomu Soma, senior manager for Okasan Securities' foreign securities department in Tokyo, referring to the possibility of further short-covering in the euro.
"What's happening is just some unwinding of positions after an earlier selloff," he said. The euro dipped 0.1 percent to $1.3783 . The single currency had touched a one-month high of $1.3834 on Wednesday on trading platform EBS, its rise having gained steam after breaching an option barrier at $1.3700 and triggering stop-loss bids.
Traders said the euro may have further room to rise ahead of a major EU summit on Oct. 23, where hopes are mounting that euro zone authorities will unveil a comprehensive strategy to fight the region's debt crisis.
"I want to give this risk-on move a bit more time. But we have a history of Europe giving us far too little, far too late," warned Robert Rennie, chief currency strategist at Westpac Bank in Sydney.
"So I'm very conscious of the fact that coming to the G20 finance meeting this weekend and the leaders summit the following weekend, I want to start selling the euro, the Aussie and risk again."
AUSSIE FACES RESISTANCE: The euro now faces resistance at around $1.3848, the 50 percent retracement of its late August to early October slide. Above that further resistance lies at $1.3937, which corresponds to a couple of daily highs hit in September.
"If the euro were to recover to the $1.40 zone, then people who sold earlier would probably have to completely give up," said Okasan Securities' Soma, adding that such a rise was unlikely to happen toward the end of the week.
"When you think about how much the euro has risen over the past 10 days or so and the fact that we're nearing the weekend, it will probably be hard to see that much upside," he said.
Against the yen, the euro dipped 0.3 percent to 106.25 , retreating from a one-month high near 107.03 yen hit the previous day. The Japanese currency also edged higher against the dollar, which fell 0.2 percent to 77.08 yen . The dollar had hit a one-month high around 77.48 yen on Wednesday.
Yen-buying by Japanese exporters weighed on dollar/yen and cross/yen, traders said. The yen, however, retreated against the Australian dollar, which jumped after data showed Australian employment rose by a surprisingly strong 20,400 in September, the biggest increase in seven months.
The Australian dollar rose 0.4 percent to $1.0178 , having touched a three-week high of $1.0235 at one point. The Aussie dollar's rise stalled near a couple of retracement levels. The 50 percent retracement of the Aussie dollar's late July to early October fall comes in at $1.0235, and the 61.8 percent retracement of its September to October drops lies at $1.0239.
The Australian dollar took in its stride data showing that China's trade surplus narrowed more than expected in September. The Aussie dollar can be sensitive to shifts in China's economic fundamentals since China is a major buyer of Australia's commodity exports.