The euro dropped below 1.3100 after the release of the September ZEW survey in Germany and has continued to move lower in American hours, weighed by higher peripheral yields and concerns about Spain.
Meanwhile, the Aussie remains under pressure after latest RBA minutes came in more dovish than expected while the yen is little changed ahead of the BoJ policy meeting on Wednesday. The Cable eased a tad, but has managed to hold above 1.6200 after UK CPI came in at expectations of 2.5% YoY.
"We would still interpret current price action as consolidative and corrective, following a sizeable US dollar drop over the previous two weeks", says the Wells Fargo team.
Hesitant Spain weighs on markets
Global stocks were mostly in the red, with the Stoxx Europe 600 down 0.4% while eurozone periphery spreads to Germany bunds widened for a second consecutive day amid cautious over Spain.
Spanish government remains reluctant to seek help from the euro zone's rescue funds, which is a prerequisite for the bond-buying program outlined earlier this month by the European Central Bank (OMT).
In Economic news, the German ZEW index came in slightly above expectations at -18.2 up from -25.5. The current conditions were softer however at 12.6, vs consensus 17.7. UBS economics notes that "the slight improvement in ZEW index may be taken as another sign that lead indicators are bottoming, although the number was positively influenced by ECB/ESM decisions".
In Wall Street, indexes opened down, also pressured by lower-than-expected profit reports from FedEx. The Dow Jones industrial average was roughly flat while the Standard & Poor's 500 Index fell 0.14% and the Nasdaq Composite Index lost 0.07%.
US stocks ended lower Monday, marking the first losing session in five, after reaching multiyear highs last week.
In US data, the US current account deficit shrank more than expected to $117.4 billion in the second quarter of 2012 from a three-year high of $133.6 billion in the first quarter. In the housing market, the National Association of Home Builders' housing market index for September rose to 40 from 37 in August, exceeding expectations.
Gold reversed early losses and rose 0.2% to $1,774 an ounce, while crude oil futures lost 0.2% to $96.45 a barrel after a steep drop the previous day triggered confusion among traders.
Euro extends pullback
The shared-currency slipped below the 1.3100 mark, extending a pullback from a 4-month high of 1.3172 scored on Monday. It was last down 0.5% at 1.3050, having hit a low of 1.3036.
"The EUR/USD hourly chart shows price below 20 SMA with indicators standing in negative territory, still under sellers’ control", says Valeria Bednarik, chief analyst at FXstreet.com. "In the 4 hours chart the bearish potential increases with indicators heading lower and price right below 20 SMA, with 1.3000 now in focus, as long as below 1.3080 static resistance zone".
"Overall, we believe corrective market activity can persist in the very near-term, but look for renewed foreign currency gains and US dollar losses over the coming weeks", says Wells Fargo.
Meanwhile, from a longer-term view, the Danske Bank team argues that the euro-downtrend has come to an end. "We expect the Fed to be successful in changing market expectations and anticipate that investors will continue to add dollar-funded carry positions on the currency market", they say. "This should trigger further dollar weakness and not least against the strongest high yielders".