The euro recovered from two-year lows against the U.S. dollar on Monday, with traders citing limited volumes in the pre-holiday market for the narrow ranges and the greenback's mixed performance.

"Not everyone has checked out of the markets just yet. We have tomorrow's slate of U.S. data to keep in mind," said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.

The dollar was knocked back after the weakest existing U.S. home sales data in six months on Monday. Tuesday's data includes November durable goods orders, final third-quarter GDP, home prices and inflation data.

On the euro's recovery against the greenback, Anderson said it was mostly just profit-taking on short-euro positions that has lifted the currency in mid-morning New York trade rather than concerns about data or the possibility of a snap election in Greece.

"Most of the market has remained fairly short of euros. A good spot to take it (short-position) off," said Anderson.

The divergence in monetary policies between the U.S., which is on track to tighten policy next year, and the European Central Bank, which is positioning itself for looser policy, has put the euro on track for weakness in 2015.

Luc Coene is the latest ECB policymaker to point the way towards outright buying of government bonds to stimulate a still-moribund euro zone economy.

"We're at levels where from a long-term valuation perspective the euro is weak but here we have ECB officials saying they will ease further and the Fed headed the other way," said Jane Foley, a strategist with Rabobank in London.

Foley and Anderson said the euro is getting some support around the $1.2200 level, limiting the currency's downside, although it is off about 11 percent so far this year and currently trades at $1.2258, up 0.25 percent on the day.

Greek Prime Minister Antonis Samaras, whose party is trailing the anti-bailout Syriza Party in opinion polls, may struggle to avoid a snap election in two remaining rounds of voting for his candidate for president, planned on Dec. 23 and Dec. 29.

Investors are concerned this could lead to a renewed threat of Greece defaulting or even departing from the euro.

The dollar rose to a two-week high of 120.01 yen , up 0.33 percent on the day. Sterling fell slightly to $1.5624 and traded at 78.45 pence versus the euro, a loss of about 0.27 percent. .

(Additional reporting by Patrick Graham in London; Editing by Meredith Mazzilli)