The euro climbed on Thursday after a document containing guidelines on the euro zone rescue fund reassured investors looking for clarity on how policymakers were planning to deal with the region's debt crisis.
The single currency jumped to a session high of $1.3843 and was last trading up 0.3 percent at $1.3798. Traders said sovereign investors were seen buying which helped to trigger stop loss orders around $1.3820 and $1.3830.
News of the guidelines document helped the euro regain ground after earlier falling to a session low of $1.3673 on doubts European leaders would take aggressive steps to ease the debt crisis at a summit on October 23.
The market is grateful for some small mercies at the moment ahead of the summit, said Steve Barrow, head of G10 currency research at Standard Bank.
However, the euro remained vulnerable to any signs of disagreement among leaders, which could push it back toward this week's low of $1.3653.
Investors focused on proposals including the suggestion the European Financial Stability Facility could buy bonds on the secondary market, although only if the euro zone country has sustainable debt.
The euro earlier held above support at the 100-week moving average around $1.3670 and analysts said it was likely to stay in a range between $1.3650 and the recent high around $1.3914 ahead of the weekend.
The details on the EFSF were weak but the fact that France and Germany are moving toward some kind of agreement is a positive thing, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
If the euro had broken below $1.3650 it would have suggested that pessimism ahead of the weekend's summit was growing.
The single currency also found some support from French and Spanish government bond auctions that met with decent demand, soothing some concerns about contagion engulfing the euro zone's core economies.
SENTIMENT SEEN FRAGILE
Risky assets and the euro have bounced in the past couple of weeks after the leaders of Germany and France pledged to unveil a comprehensive package by the end of the month to resolve the euro zone's debt crisis, including an agreement on how to recapitalize banks.
But investors remain nervous about signs European policymakers were struggling to reach consensus on measures to contain the debt crisis in the lead up to the EU summit and a G20 summit in early November.
French President Nicolas Sarkozy said on Wednesday that plans to tackle the euro zone debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund.
Analysts said sentiment was still extremely fragile and the single currency would be vulnerable to headline-trading.
We are in a range ahead of the meeting but nervous within it. I think the path of least resistance for the euro from here is downwards, said Kit Juckes, currency strategist at Societe Generale.
The euro reversed losses versus the safe haven yen following the release of the EFSF document guidelines, last trading up 0.3 percent on the day at 105.94 yen.
The yen was flat against the dollar at 76.83 yen and had showed subdued reaction to news that Japan's government and the Bank of Japan will launch a task force to help deal with the yen's recent strength.
Commodity currencies also rallied on the improvement in investor appetite to take on risk, with the Australian dollar reversed losses to trade up 0.2 percent at $1.0248.