The euro consolidated well below two-month peaks against the dollar on Tuesday as investors hesitated to go long on the single currency and risk large short dollar positions during the U.S. earnings season.
The euro held steady at $1.2595, with resistance seen roughly around $1.2690, the trendline from the December high. Near-term support is seen near $1.2550, the previous session's low.
Investors were also cautious about the single currency ahead of Greece's return to capital markets for the first time since late April.
The debt-laden country is seeking to raise 1.25 billion euros through a sale of six-month Treasury bills. That could prove to be a litmus test for the euro in the short term ahead of the results of the euro zone banks' stress tests next week, traders said.
A robust response to a Spanish debt auction earlier this month saw the euro rally to two-month highs. That coincided with worries the U.S. was heading toward a double-dip recession, sending the greenback to its lowest in nearly two-months against a basket of currencies.
Those concerns have taken a back seat for now, but traders said real money investors and margin traders were still being cautious, given lingering worries about a global slowdown.
The way they are positioned, there is still a feeling that a double-dip recession could happen, said Jonathan Cavenagh, a currency strategist at Westpac, Sydney.
I think they could be in for a major surprise if a majority of U.S. corporate results beat expectations. That should see the U.S. dollar stage a comeback and hence investors are a bit cautious about going too short.
The dollar index was barely moved at 84.199, having bounced from the key December 2009 trendline support around 83.80.
The dollar held steady against the yen at 88.57 yen, with decent resistance seen in the 89-89.15 yen area.
Dollar offers from Japanese exporters await above 89 yen and are likely to limit gains in the dollar, traders said.
The yen struggled for most of the previous session after Japan's ruling Democratic party suffered a stinging defeat in a weekend parliamentary election but recouped its losses during North American trade.
Japan's political uncertainty will likely keep yen assets under pressure, said Tsutomu Soma, senior manager of the foreign asset department at Okasan Securities.
Yet players cannot figure out whether selling in Japanese assets, such as shares, would also spark yen selling or ultimately trigger yen buying on risk aversion.
Higher-yielding currencies such as the Australian and New Zealand dollars initially benefited after Alcoa posted a higher-than-expected profit for the second quarter on Monday.
But those currencies later gave back gains as Shanghai shares fell more than 1 percent, somewhat cooling risk appetite, a senior trader at a big Japanese bank said.
Shanghai shares fell more than 2 percent at one point after the government said it would continue to rein in speculation in the country's red-hot property sector.
Other Dow heavyweights reporting earnings this week include Intel Corp, JPMorgan Chase and General Electric.
The Australian dollar fell 0.4 percent to $0.8737 after rising as high as $0.8780 earlier in the day. Resistance is seen at the June 21 high of $0.8860 and at $0.8884, a 61.8 percent Fibonacci retracement of its fall from April's peak of $0.9389 to May's low of $0.8066.
The New Zealand dollar dipped 0.1 percent to $0.7119, off the day's high of $0.7146.
(Additional reporting by Anirban Nag and FX analyst Krishna Kumar in Sydney, Masayuki Kitano in Tokyo; Editing by Joseph Radford)