LONDON, (Reuters) – Oil hovered below $88 on Friday as currencies fluctuated on the back of fresh concerns about high levels of debt in the eurozone.

The euro was the main driver in an otherwise quiet market for oil as investors began to wind down ahead of the seasonal holiday, said Tony Machacek of Bache Commodities in London, who added some stop-loss orders may have been triggered by earlier gains in the session.

Investors broadly held their nerve after Moody’s slashed Ireland’s debt rating and put the country, along with Greece, on negative outlook warning that further downgrades could follow.

“The currency factor is quite important right now for the oil market. People are looking to the foreign exchange markets and the euro is pushing down the dollar,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

By 1412 GMT the euro relinquished earlier gains to trade flat against the dollar which had, in turn, fallen 0.1 percent against a basket of currencies. U.S. crude for January, which expires on Monday, climbed 15 cents to $87.83 a barrel. ICE Brent for February delivery lost 5 cents to $91.56.

EU leaders meeting in Brussels failed to agree any specific measure to stop contagion spreading from Greece and Ireland but concerns were tempered by German business sentiment which rose to its strongest level since 1991, according to a closely-watched survey by the Munich-based Ifo think tank.

CONSOLIDATION MODE

Prices have also been supported by cold weather in much of Europe while the U.S. Northeast, the top heating oil market, was on track to have its ninth coldest December since 1950.

Oil and dollar-denominated commodities often move inversely to the dollar; a weaker dollar typically lifts oil prices as it lowers the value of greenbacks paid to producers.

“The recent long-side bias could likely be scaled back somewhat, as hedge funds seek to close out both the quarter and the year. This could result in prices working slightly lower as we head into the year-end,” said Edward Meir, a senior commodity analyst at MF Global.

Technicals showed that crude was set to fall to $85.41 next week, which would be the lowest since December 1.

Analysts remain cautious that prices could weaken and become more volatile as operations wind down for the year end and trading volumes begin to thin.

Investors will remain on alert over the weekend for any move from China to raise interest rates which could cool demand, added Meir.