The euro ticked up toward a two-month peak above $1.3000 on Tuesday, although traders were cautious about bidding it up too much as they await clarity on Deutsche Bank's exposure to euro zone sovereign debt.
Deutsche Bank has not revealed its exposure to euro zone sovereign debt following tests to see how well banks in the region would stand up to financial shocks.
It is expected to disclose more when it reports earnings later on Tuesday, which some traders said, if there are no shocks, could build more confidence in euro zone banks and trigger buying in the euro.
In that case, the euro's next target would be last week's two-month high of $1.3029 and then $1.3125, a 38.2 percent retracement of its December-June fall, technical analysts said.
Despite all the negative talk about the stress test results, German interest rates are rising and the euro firmed, which seems to suggest lingering euro short-covering needs, said Osamu Takashima, chief FX strategist at Citibank in Tokyo.
The euro rallied on Monday on relief the tests were over, although concerns they were not rigorous enough mean investors are still hesitant to make big bets on it, while some traders say euro zone debt redemptions this week could also constrain it.
Citi estimates there are some 45 billion euros worth of maturing bonds and coupon payments this week.
The euro was flat on the day at $1.2995 after ticking above $1.30 earlier. It rose about 0.6 percent on Monday.
Any fall was seen as limited while it remained above support at $1.2870 -- its 100-day moving average -- and last week's low around $1.2730.
The euro gained 0.1 percent to 112.96 yen. It has met stiff resistance at 113.30-50 in the past two weeks, partly on selling by Japanese exporters.
But Takashima said it was likely to rise above 113 yen.
It's true Japanese exporters were lowering their target price to around 113 yen from 118 yen. But looking at trade data, exports to Europe are stagnating, which points to limited selling by exporters, he said.
The euro also strengthened 0.2 percent against the Aussie, which softened after hitting a 2 1/2-month high against the U.S. dollar in the previous session.
The Aussie tends to gain with when investors are more risk tolerant but a fall in Shanghai share prices on worries about possible losses in local banks lending to local governments and property sapped its strength.
The euro fetched A$1.4411, about a cent above a double-bottom around A$1.4320 formed this month.
But it needs to clear A$1.5143 to end a downtrend in place since late 2008, technical analysts at RBC Capital Markets said in report.
The Aussie was steady on the day at $0.9016, after rising the most among major currencies on Monday as investor risk appetite revived after the stress test results.
But chartwise it could be set to rise against the yen. Its Ichimoku charts showing the pair's tenkan sen line rises above kijun sen line, a bullish signal.
A rise above 79.97 yen within the next three weeks will put the currency above the Ichimoku cloud, another strong buy signal.
I think investors will tiptoe back into high-yielders as worries about Europe will gradually subside, said a trader at a Japanese brokerage house.
The U.S. dollar gained 0.1 percent against the yen to 86.95 yen, though it was capped by offers around 87 yen from Japanese exporters.
The British pound held at $1.5490, below a three-month peak of $1.5521 hit on Monday.
Sterling faces several targets at $1.5555, which is its 200-day moving average and the 50 percent retracement of its decline from November to May.
(Contribution by Reuters Analyst Krishna Kumar in Sydney; Editing by Charlotte Cooper)