Euro has best week since January as Greece fears ebb

It was a banner week for the euro as Greece evaded a near-term default and investors embraced risk, but don't expect a repeat performance given investors' belief that the country's debt crisis is far from over and concerns about the global economic recovery. Relief over Greece caused the euro to enjoy its best weekly performance against the US dollar since January.
--- Euro hits 3-week high above $1.45; Swiss franc tumbles
--- ECB to hike next week, but more increases questioned
--- US jobs data, debt ceiling debate seen swaying dollar
After days of Greece headlines, market participants next week will turn their focus on US economic data and a European Central Bank monetary policy meeting. The Greek parliament passed two crucial austerity bills this week, opening the way for international lenders to release a 12-billion-euro ($17 billion) loan instalment that Athens urgently needs to stave off bankruptcy.
"The market turned a corner this week in terms of risk sentiment, but the market is also extremely near-sighted," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "What we had this past week was a relief rally and the market can only breathe a sigh of relief for so long," he said. "Next week we will see whether the euro's strength is sustained or falters, but I am betting on the latter."
Uncertainty remains about a longer-term solution for Greece. Euro-zone finance ministers are scheduled to hold preliminary talks this weekend on the second financing package for Greece for 2011-2014, which could total up to 120 billion euros ($175 billion).
"The longer term picture still stands and a Greece default is still very likely, with all the issues likely to arise again in September," Dolan said. The euro last traded at $1.4512, up 0.1 percent on the day. It had earlier risen to a three-week high of $1.4553 on trading platform EBS. At current rates it's up 2.3 percent this week, on pace for its biggest weekly advance since January. It was also its first weekly gain against the dollar in a month.
The re-emergence of risk aversion should send the euro to $1.4250 by the end of next week, Dolan said. "Overall, it has been a positive week for global risk sentiment and a negative week for safe haven currencies such as the US dollar, yen and Swiss franc," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
US financial markets will be closed on Monday for the Fourth of July holiday. The market may start to rebuild long euro positions ahead of an expected interest-rate hike by the European Central Bank next Thursday, which would further move interest-rate differentials in favour of the euro.
Markets are expecting ECB President Jean-Claude Trichet to strike a hawkish tone after the meeting. However, they remain reluctant to price in further tightening. Weaker euro area activity data over the past month puts the ECB in a precarious position at this juncture, analysts said. Against the yen, the dollar rose 0.4 percent to 80.84 yen.
In the US a slew of US economic data could sway currency market sentiment next week, namely ADP private payrolls data on Wednesday and the US Labour Department's non-farm payrolls report on Friday. This week marked the end of the US Federal Reserve's second round of quantitative easing, or QE2, as the program was known. QE2 entailed buying $600 billion in US Treasury securities and was negative for the dollar as it was tantamount to printing money,
The end of the programme is positive for the dollar, but US fiscal concerns and the government's debt ceiling debate should continue to weigh on the dollar. "While the end of the Fed's Treasury purchase programme does in our view remove a source of selling pressure on the dollar, the uncertainty over the debt ceiling is becoming an increasingly troubling issue for the greenback," Wells Fargo's Serebriakov said. "Until that uncertainty is resolved, the upside for the dollar should remain limited," he said.