The euro held steady on Tuesday, staying above a seven-week low hit the previous day, but downside risks persisted.

The euro also remains vulnerable due to concerns about the debt of peripheral euro zone countries, although it gained some reprieve on Monday after euro zone finance ministers approved an emergency loan programme for Portugal.

'It does seem like it (the euro) has stopped a little bit but it still looks heavy,' said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.

'If we see a further drop in commodities, the euro could make a try for $1.40,' Fukaya said, adding that some investors seem interested in buying the euro at levels around $1.40.

The euro held steady at $1.4158, holding above a seven-week low of $1.40481 hit on Monday on trading platform EBS.

The euro had rallied to a 17-month peak near $1.4940 in early May, buoyed by market expectations for the European Central Bank to raise interest rates further in the coming months, while the Federal Reserve is expected to keep interest rates near zero this year.

But the single currency has since slid about 5 per cent from that high, as a rout in commodities such as silver and oil spooked investors and prompted them to trim back dollar-funded bets on risky assets.

Renewed concerns that Greece may restructure its debt have also dented the euro and tempered risk appetite.

The euro edged up 0.4 per cent against the yen to 114.91 yen, pulling away from a two-month low of 113.403 yen hit on EBS on Monday.

The yen retreated broadly, with the dollar climbing 0.4 per cent to 81.16 yen. Traders said the dollar's rise against the yen picked up momentum after stop-loss bids were triggered in thin market conditions, with markets in Singapore and several other Southeast Asian countries shut for a holiday.

In addition, a trader for a Japanese brokerage house cited talk of yen-selling by Japanese investment trusts.

The Australian dollar dipped after the minutes of the Reserve Bank of Australia's May policy meeting offered few fresh clues on exactly when the central bank may next raise interest rates.

A senior trader for a Japanese trust bank said global macro hedge funds were detected unloading long positions in the Australian dollar after the minutes were released, but added that the market impact was limited as the minutes were largely in line with expectations.

Indeed, the Australian dollar's dip proved short-lived. It held steady at $1.0573 after slipping to $1.0534 earlier and approaching a one-month low of $1.0513 hit on Monday.

Euro long positions

In a bearish signal for the euro, the single currency broke below support at the top of the daily Ichimoku cloud late last week, and its next support on the daily Ichimoku chart lies at the bottom of the cloud, now at $1.3974.

The $1.39-40 region is regarded as a significant area for the euro. There has been talk this week of stop-loss euro offers at levels around $1.40. In addition, a series of euro support levels are clustered in that region, including the 100-day moving average near $1.3933.

Besides the daily Ichimoku chart, a form of Japanese technical analysis popular among market players, market positioning also points to the potential for a pull-back.

Based on regression analysis of the euro/dollar and IMM currency speculators' long positions in the currency pair since September, the euro could fall to $1.33 if all speculator long positions are unwound, said Makoto Noji, senior strategist at SMBC Nikko Securities.

But Noji also said he does not expect euro to fall to $1.33, as he expects the market's focus to shift back to yield gaps from the euro zone's sovereign debt woes.

The yield on two-year German government bonds is now 127.4 basis points above comparable two-year US notes, not far from an early May peak near 133 basis points, which was the widest since late 2008.

Positioning data published by the US Commodity Futures Trading Commission shows that currency speculators trimmed their net long position in the euro in the week to May 10 but still held relatively large bets on the euro.

Their net long position in the euro stood at 61,447 contracts. While that was down from a four-year high of 99,516 hit the week before, it is still among the largest net long positions seen since late 2007. – Reuters