The euro rose the most against the dollar in two weeks on Friday and may extend gains this week should an auction of Italian bonds go smoothly, easing fears over the country's ability to repay its debt.
Italy is slated to auction €3 billion (Dh15 billion) of five-year government bonds tomorrow. It will be closely watched by investors after Rome managed to sell €5 billion of one year debt last week that helped Italian yields stabilise below the critical seven per cent.
Trading could continue to be volatile and headline-driven, and the outlook for the euro remains bleak as the Eurozone has yet to find a solution to prevent the debt crisis from engulfing its larger economies such as Italy and Spain.
"It's going to depend a lot on how the Italian auction goes," said Boris Schlossberg, director of FX research at GFT in Jersey City.