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Asian session – Euro vulnerable as EU-Greece prepare final loan agreement

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EU flagsRisk sentiment in the currency markets was supported after the EU and Greece came to an agreement on Friday to extend Greece’s loan by four months.

The euro rallied on the announcement to a high of 1.1428 late on Friday and held onto most of the gains during the Asian session on Monday. The euro held steady against the yen, easing slightly off Friday’s high of 135.89. The single currency remains vulnerable however and markets are cautious until a formal agreement is reached today. Greece still has to provide a list of reform measures to the EU by Monday.

The dollar rallied to a high of 119.17 yen on Friday and consolidated these gains in Asia. The key driver of the dollar/yen pair will be this week’s risk event – Federal Reserve Chair Janet Yellen’s testimony on the economy and monetary policy before the US Congress. The testimony is scheduled for Tuesday and Wednesday. Meanwhile, US inflation and GDP data due this week are also important to look out for.

Later today, Germany releases the Ifo business climate index which is expected to come in at a 4-month high and give optimism of a continued recovery in Europe’s powerhouse.

In other currencies, the Australian dollar traded to a high of 0.7847 in Asia. The Lunar New Year holidays in China kept volumes low in the region. The main risk for the aussie will be Chinese data on Wednesday which includes the release of the HSBS flash manufacturing PMI.

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