The euro steadied against the dollar on Friday, retaining gains made the previous day on strong euro zone data and U.S. corporate earnings, as investors awaited European bank stress test results due later in the day.
The euro, which jumped more than 1 percent against the greenback on Thursday, moved in a narrow range around $1.2900 EUR=, little changed from late U.S. trade on Thursday.
It has support at about $1.2720, an interim high from July 9 set during its recent rally from a four-year low, and is consolidating at $1.2720-1.3030. A break above that band could see it testing $1.3090-1.3125.
But traders said the euro was unlikely to re-test this week's 10-week high of $1.3029 just yet nor fall sharply ahead of the stress test results, which could move other currencies as well.
Traders have been betting most of the 91 European banks being examined will pass. Analysts say if there are no ugly surprises, that will be euro supportive, although some are sceptical about the severity of the checks.
Few are seriously worried about results of the bank stress tests now, and that is supporting the euro, said a senior FX trader at a big Japanese bank.
But it's hard to see whether the euro will extend gains against the dollar after the test results as investors are well aware the root problem of the euro zone debt woes is sovereign credit trouble.
Euro bulls bet the euro could extend its rally partly on dollar weakness due to concerns the U.S. recovery is faltering. Below-forecast economic data has fanned fears about a slowing economy, prompting investors to dump long dollar positions.
But bears bet the euro rally could lose steam, pressured by selling against currencies with higher interest rate prospects, such as the Australian EURAUD=R and Canadian dollars EURCAD=R.
Chartists say a breach of $1.2720 support could be the first warning of a deeper retracement from its 10-week high.
Euro/dollar 1-month risk reversals EUR1MRR=ICAP, a measure of currency sentiment, showed a bias for euro puts. Traders said that partly reflected speculation the euro may start falling sometime after the test results.
Data from broker ICAP EURVOL=ICAP shows euro/dollar 1-month risk reversals at 1.35/1.85 percent.
The yen was flat, recovering early losses as Japanese exporters sold the dollar, the euro and the Australian dollar, traders said.
The Japanese currency fell after data on Thursday showed surprisingly robust growth in European manufacturing and services, and after strong earnings from U.S. blue chips such as 3M (MMM.N) and Caterpillar (CAT.N) rekindled hopes for the global economy and improved investor appetite for risk.
The euro was steady at 112.08 yen EURJPY=R, having risen about 0.9 percent on Thursday.
The dollar inched down 0.1 percent to 86.91 yen JPY=, staying above a seven-month trough of 86.27 yen struck on trading platform EBS late last week. (Additional contribution by Reuters FX analyst Rick Lloyd in Singapore and Krishna Kumar in Sydney; Editing by Charlotte Cooper)