The euro fell on Tuesday, extending the previous day's sharp drop, as reduced hopes of a comprehensive solution to the euro zone's debt crisis and a warning over France's sovereign credit rating prompted investors to continue selling the currency.

A fall in German investor sentiment to the lowest in nearly three years fueled further concerns over the impact of the crisis on the core of the euro zone and pushed the euro to the day's lows of $1.3657 on trading platform EBS.

The euro was last down 0.3 percent on the day at $1.3680 after running into reported sovereign demand ahead of $1.3650. It had shed 1.1 percent on Monday, with market positioning and some technical signals suggesting that its recent short-covering rally had run out of steam.

We continue to head lower with expectations reduced for this weekend's EU summit, but the outcome of the November G20 summit is still key, said Geoff Kendrick, currency strategist at Nomura in London.

If there's no action taken on plans for bank recapitalization at the G20 then the euro will be sub $1.30 very quickly, he added.

Highlighting the euro's vulnerability to speculation about euro zone bailout plans, the single currency trimmed some losses after euro zone officials said leaders were likely to agree to leverage their bailout fund by allowing it to guarantee a portion of newly issued debt.

On Monday, German Finance Minister Wolfgang Schaeuble poured cold water on the euro's recent rally by saying an October 23 European Union summit would not provide a definitive solution to the region's debt crisis.

G20 leaders are under pressure to look beyond domestic issues and take action to tackle the international financial crisis to regain the trust of financial markets when they convene in Cannes at the beginning of November.

While some gauges of market positioning suggest speculators may still be short the euro, the amount of their euro bearish bets is likely to have declined over the course of the recent rally, leaving the euro vulnerable to more selling.

The euro was well below a one-month high around $1.3914 hit on Monday. Traders said it was under near-term pressure after the break of Friday's low at $1.3720, while Asian sovereign demand was reported in the $1.3650 region.

Below that, technical support for the single currency lay around $1.3625, a level which fell on a trendline connecting troughs hit earlier this month.

Technical analysts at Barclays Capital say a break below that level could push the euro down to $1.3525, a high hit on October 7.

In the near term, some analysts said the euro may also suffer if upcoming earnings reports from U.S. banks and other firms show corporate America is struggling, which would sour demand for currencies perceived to be riskier.

Bank of America Corp, Goldman Sachs and Apple Inc are among the companies releasing Q3 results later in the day.

The $1.31/1.39 move in the first two weeks of October was quick and sharp, and there is scope for a further correction in EUR/USD particularly if big earnings reports today disappoint, RBC analysts said in a note, adding that the correlation between euro/dollar and equity returns is at an all-time high.


Worries over the health of the European economy kept pressure on the euro, after Moody's warned on Monday it may slap a negative outlook on France's triple-A credit rating in the next three months.

The premium investors demand to hold French government bonds rather than benchmark German Bunds rose to a 16-year high on Tuesday after Moody's warned the sovereign's credit rating outlook could deteriorate.

The Australian dollar slipped to $1.0150, retreating from a one-month high of $1.0372 on Monday.

A batch of Chinese data was broadly in line with market expectations, confirming that China's economic growth was moderating but not weakening sharply, and had limited impact on the Aussie.

The Aussie dollar can be sensitive to shifts in China's economic fundamentals since China is a major buyer of Australia's commodity exports.

The dollar slipped 0.2 percent to 76.65 yen.