The dollar fell today towards a five-week low against a basket of currencies, with traders cautious ahead of a Federal Reserve policy meeting that may discuss the need for further easing.
It struggled at 85.50 yen, supported by fear of Japanese intervention below that level but unable to rally, while the Australian dollar remained up near a two-year peak.
The euro edged up 0.2 per cent to $1.3090, less than a cent below a five-week high at $1.3160 hit on Friday, despite renewed worries over some euro zone countries debt.
Few traders expect the Fed to apply another dose of quantitative easing (QE) just yet - and the dollar could advance short-term if that view proves correct.
But some said the greenback was unlikely to gain much respite as the policy-setting Federal Open Market Committee (FOMC) would probably signal its readiness to take QE steps if needed, keeping expectations of more dollar-printing intact.
"The pressure will still remain (on the dollar). The FOMC is caught between a rock and a hard place. They would like to have an outlook on the economy that is a bit rosier than it actually is," said Robert Reilly, head of trading, flow, fixed income and currencies for Asia at Societe Generale in Hong Kong.
"But in reality the way the market's pricing and looking at it, the market is looking for the FOMC to come out and indicate that further measures in terms of quantitative easing will maybe remain and this will be negative for the dollar."
A triangle is forming on the hourly euro/dollar chart with parameters of $1.3100 and $1.3030.
While the euro holds above the $1.3030 area, some chartists see its August 6th high of $1.3334 as an upside target, but there are hurdles before it gets there, including the triangle top and its 200-day moving average which comes in at about $1.3220.
The dollar fell 0.2 per cent against the yen to 85.55 yen, keeping a tight range after Japan intervened in the market last week for the first time in six years.
It has failed to get above its post-intervention high of 85.94 yen set last Friday, capped by Japanese exporter selling ahead of half-year book-closing on September 30th, and more sales are expected towards the 86 yen level before then.
Its 55-day moving average, now at 85.87 yen, has become a resistance level since Japan intervened last Wednesday, and further resistance lies at 86.26, the bottom of its daily Ichimoku cloud.
The commodity-linked Aussie held near a two-year high of $0.9495 hit yesterday after the head of its central bank suggested Australian interest rates would rise further.
It rallied again briefly after minutes of the central bank's September meeting showed policy makers think interest rates are likely to rise.
But talk of a large option barrier around $0.9500 with expiry at the end of the month helped cap its progress higher.
Reuters