The single currency was down 0.3 percent at $1.2916 in thin year-end trade. It recouped some losses from Thursday when it sank to a 15-month low of $1.2858 after high yields at an Italian bond auction prompted euro selling.
Market players said the fall was exacerbated by illiquidity but, with the euro having broken decisively below $1.30 earlier in the week, this level would act as resistance to any rebound.
Italy, the euro zone's third-largest economy, remains at the centre of the debt crisis that began in Greece two years ago and its borrowing needs could overwhelm the bloc's financial defences if it were forced to seek an international bailout.
Ten-year Italian yields are above the 7 percent level seen as unsustainable, with the country needing to raise 450 billion euros ($580 billion) in debt markets in 2012.
Analysts said euro zone funding pressures were likely to intensify in early 2012, with 230 billion euros of bank bonds, up to 300 billion euros in government bonds, and more than 200 billion euros in collateralised debt maturing in the first quarter. Government issuance of new debt will be scrutinised for any sign investors are shunning the currency bloc.
"If the euro is going to be salvaged the market needs an injection of faith over the next few weeks. The Italian and Spanish auctions are key," said Neil Mellor, currency strategist at Bank of New York Mellon.
"If they go badly it will be very clear that European banks are not willing to take any of the cash they got from the European Central Bank and put it into sovereigns. That would be a very bad sign."
Last week the ECB provided banks with almost half a trillion euros in three-year loans at low rates to encourage lending. Some policymakers have urged banks to use the funds to buy Italian and Spanish sovereign debt.
But the latest ECB data suggested banks were hoarding the cash, with 445 billion euros being deposited in the central bank's overnight facility, up from 436 billion euros the previous day.
Analysts said investors would also be looking at Spanish government savings measures, set to be announced on Friday, for signs of how Spain plans to cut its deficit.
2010 EURO LOWS EYED
This year the euro has lost more than 3 percent versus the dollar, adding to a 6.6 percent decline in 2010. Some analysts said the currency could drop as low as $1.20 by the end of 2012 in the absence of a comprehensive policy response to the crisis.
"The euro has moved in clear waves since the Lehman crisis, so the only downside objective that makes sense for the year ahead is its 2010 low of $1.1876," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The euro fell 0.3 percent to 100.25 yen, nearing the 10-year low around 100.01 hit on Thursday. Traders said a reported option barrier at 100 yen was still intact, but vulnerable to attack by speculators due to thin liquidity.
With the euro on the back foot, the dollar index stayed close to a one-year peak of 80.854, at 80.546. Against the yen, the dollar was flat at 77.61, with traders reporting stop loss orders at 77.50 yen.
The Australian dollar rose 0.1 percent to $1.0151, shrugging off HSBC China PMI data that showed Chinese factory activity had shrunk again in December.For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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