The euro eased on Wednesday but still held near a two-month high, supported by hopes that Greece may soon agree to austerity steps needed to secure a second bailout and avoid a disorderly default.
The dollar rose versus the yen, helped by dollar demand from Japanese importers. Cross/yen pairs were also mostly firmer, their near-term technical outlook having improved after they breached some resistance levels recently.
The euro dipped 0.1 percent to $1.3252, not far from a two-month high near $1.3270 hit the previous day on trading platform EBS.
The previous day's surge in the euro was due to a squeeze in short-positions, rather than on a view that all is well in Europe, market players said.
While there are suggestions Greece is close to an agreement, Athens politicians have yet to agree to painful austerity measures to receive a second bailout package. They have delayed, once more, the deal deadline to Wednesday.
Even if an agreement is reached, the euro may have limited scope to rally, said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
"Potentially we may even have a buy on rumour, sell on fact type of outcome," Kotecha said.
"Euro has already strengthened fairly sharply on expectations of some sort of a deal and I think once it does happen we may see a little bit more upside at most," he added.
The next level of resistance for the euro is found at the 100-day moving average of around $1.3334, ahead of $1.3436, the 50 percent retracement of the decline from the late-October high of $1.4248 to the mid-January low of $1.2624.
A trader for a major Japanese bank in Singapore said the euro could see more short-covering if Greece agrees to a deal.
"The sense I get is that some short-term players have been putting on short euro positions," the trader said, adding that there was talk of stop-loss euro bids at levels above $1.3300.
Given such market positioning and because many players still have bearish views on the euro, the possibility of further position unwinding lifting the single currency to around $1.3500 or $1.3550 could not be ruled out, he added.
The dollar rose 0.3 percent to 76.97 yen, inching away from a three-month low of 76.027 yen hit last week.
The yen eased broadly, with the euro rising 0.2 percent to 102.01 yen and sterling edging up 0.3 percent to 122.34 yen.
Some market players have become bullish on dollar/yen and cross/yen after Japan confirmed this week that it had followed up its massive yen-selling intervention last October with covert intervention in early November, said the trader for a Japanese bank in Singapore.
Another trader said there was an increased focus on cross/yen pairs after they breached some resistance levels recently.
With its gain the previous day, the euro rose above resistance at the bottom of the daily Ichimoku cloud. The next major resistance on the daily Ichimoku chart, a popular technical analysis tool, comes in at around 105.14 yen.
In a similar signal, sterling/yen initially poked above the bottom of the cloud late last week and now faces resistance at the top of the cloud at 123.09 yen.
A senior spot trader for a major Japanese bank in Tokyo said Japanese exporters are waiting on the sidelines eager to sell into euro/yen and Aussie/yen strength, adding that his sense is that the recent improvement in risk sentiment will lift the cross/yen pairs a little further.