Bonds and banks may be stealing headlines today, but the underlying issue about the future of the shared currency continues to top the bill when it comes to forex broker and trader debate.

Uncertain market conditions have kept the euro down of late, and the currency took a further Wednesday after Italian Prime Minister Mario Monti admitted that “Greece is likely to stay in the euro”. The currency ended another 51 pips in the red at 1.2535 at close of play, but we saw some nervous action this morning with buyers edging back, pushing EUR/USD up to 1.2560 according to live forex charts.

Relief rally

Despite the potential economic destruction which would be caused by Grexit from the euro zone, many traders are optimistic about how the euro would perform should it finally be freed of the Greek uncertainty. Speaking at yesterday’s City A.M. Active Trader conference, chief market strategist for IG Index, David Jones, told me: “If Greece goes, I think the euro will rally because they’ll [traders] think ‘thank God for that’”.

“I agree – the euro has to stay weak for countries on the periphery to stay part of the euro zone, but once they are gone…”, concurred Michael Derks, chief strategist at FxPro. Months of uncertainty over the fate of the euro zone and its Greek compatriot have undoubtedly taken a serious toll over the health of investor sentiment. The single currency hit a near two-year low against the dollar yesterday and continued to lose today, after dire German economic data which showed even the German economy isn’t immune to the European crisis.

PM Monti’s comments and the pursuant euro tumble stands, perhaps, as further testament to the fact that the Greece’s continued membership poses a threat to the health of the single currency.

Long-term prospects

But amid the talk of a EUR rally in the face of a Grexit, comes the argument from many top analysts that long-term prospects are not good if Greece leave the currency bloc. "The euro is a bit higher today, but I will be surprised if it takes stops above $1.2620. The medium-term prospects are not good," said Geoff Kendrick, currency analyst at Nomura, speaking of live forex chart movements seen this morning. "We think if Greece does not exit the euro zone, the euro will see a gradual decline to $1.23 in coming months. But if it does, then we see the euro falling to $1.20 by the end of the second quarter and $1.15 by the end the third."

Aside from Greece’s exit prospects, investors are now allowing the weight of the current Spanish bank crisis to weigh down on the shared currency. Factors such as these – combined with the lack of any aggressive policy measures to combat the escalating crisis – has seen the euro being sold off on rallies with many analysts and traders now expecting it to drop below $1.25 and $1.20 to its 2010 trough of around $1.1875 in the coming weeks. The common currency has lost more than 5 percent against the dollar so far this month and is on track for its fourth straight week of losses.

Here at ForexSpace.com - we’re hearing big money on shorting out the EUR for the week - with one Thomson Reuters analyst reporting an order for $1bn. But the situation is likely to be a divisive one for man traders, as Ashraf Laidi points out. With a EUR move either way betraying the genuinely mixed sentiment ahead of what may feel like a long weekend away from the trading screens. “Logic?”,Laidi tweeted, “if euro gains today some say pre-holiday short covering, if it falls they’ll say none wants to hold”

Sarah Cox, Staff Writer