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The euro extended its decline versus the dollar into a second day on Tuesday as investors' focus shifts back to European woes. The European sell-off in EUR/USD was blamed on everything from a Spanish benchmark bond error in Bloomberg, to a delayed reaction to the IMF downgrades.

The rest of the day is expected to be pretty quiet, with no major U.S. data to watch. The U.S. Q3 earnings season kicks off with Alcoa, due after the closing bell.

The focus will probably remain on European developments. Eurozone finance ministers' meeting continues while German Chancellor Merkel is due to meet Greek Prime Minister Samaras in Athens. However, announcements on whether Greece will receive its next aid tranche are not expected until the troika has finished its quarterly review.

Euro falls but remains in familiar ranges, looking for a catalyst

The euro extended its decline versus the greenback on Tuesday, dropping to a low of 1.2905 during the European session before finding support at the 23.6% retracement of its longer-term 1.2041/1.3071 rally.

From a wider view, EUR/USD keeps looking for catalysts to break out its recent range, contained by 1.2803 on the downside and capped by September's double-top at 1.3171. A quiet week in North America should probably leave the pair moving at the rhythm of European developments and headlines, making the outlook unclear.

"We still believe that ultimately aggressive ECB intervention could push the euro substantially above 1.30, but this would require action soon. And even if the OMT does get activated, it now looks like on the way there we will have to see lower levels first", said the UBS team.

Near-term speaking, a break above 1.3070 should pave the way to a retest of 1.3171, while loss of 1.2880 should quickly take the pair back to the bottom-side of its range around 1.2800 with not much in the way.

"Considering the bigger picture for the EUR though, perhaps the lack of developments itself is the cause of the single currency's softness as the market acknowledges the significant amount of consensus that has to be reached in the coming weeks/months among European politicians", says the TD Securities team. "In the near term, the overnight low (of 1.2910) should provide decent support before we look to 1.2800 or so, while the overnight high (of 1.2990) is the level to watch on the topside, before 1.3050 comes into view".

Meanwhile, Rabobank analysts note that while they expect EUR/USD will push towards 1.35 on a 12 month view on the back of a soft USD, they "also see EUR/USD slipped back towards 1.2600 on a 1 month view on the market of a near-term intensification of market tension and associated USD demand."

Source: Euro Weaker But Rangebound, Still Searching For A Catalyst