An expectation for the euro to head lower against a broadly-robust U.S. dollar could be turned on its head if economic data from the recession-hit euro zone continue to surprise on the positive side, currency strategists say.
The euro rose about half-a-percent on Monday after data showed that manufacturing output in the euro zone improved in June to a 16-month high in a sign that the euro zone economy was stabilizing.
It was trading at about $1.3060 on Tuesday, moving away from a three-week low hit last week just below $1.29.
"There have been some better numbers so there's some hope on the growth side," said Sean Callow, senior currency strategist at Westpac Bank, in Sydney.
"There is some degree of optimism there and that is worth keeping an eye on, especially if you are short the euro," he said referring to bets on euro weakness.
Monday's Purchasing Managers' Index (PMI) data from Spain and Italy in particular drew attention, with the Italian PMI rising to its highest level since July 2011 and the Spanish number rising to 50 in June from 48.1 in May and hitting the key barrier that divides expansion in manufacturing activity from contraction.