LONDON The euro hit a 2-1/2-week high of $1.0730 in morning trade in Europe on Monday EUR=, up half a percent on the day after recovering strongly from falls following Italy's vote to reject government proposals for constitutional reform.
Traders said the bounce looked chiefly due to over-extended bets against the single currency and investors choosing to cash in gains in an initial 1 percent slide after the referendum, which is expected to see Prime Minister Matteo Renzi resign.
Bond and equity markets had also recovered ground after initial falls.
"I think the euro is going to strengthen a lot now. I think it is way oversold,” said Nick D'Onofrio, chief executive at London-based hedge fund North Asset Management.
"There's a view out there that the euro is going to blow up and I don't buy it. Ultimately, yes, we do think it will weaken in the longer term. But short-term I don't believe in this idea that there is an imminent blowup."
(Writing by Patrick Graham, editing by Nigel Stephenson)