The euro was trading cautiously on Monday, following a week of uncertainty that ended with Greece securing a short-term loan extension in exchange for further oversight from its creditors and other reforms that squashed Athens’ “anti-austerity” pledge. The attention this week shifts back to the economic data, although the threat of an eventual Greek exit from the Eurozone remains in the background.

The EUR/USD was trading at 1.1368 in the early Asian session, down 0.13 percent. The pair faces initial support at 1.1294 and resistance at 1.1445. The euro advanced slightly against its US counterpart last week, but ended on a sour note following the details of the Greek loan extension. The pair briefly fell below 1.13 on Friday before recovering.

Several batches of high profile data are on the docket this week, headlined by Germany. On Monday the IFO Institute will release the business climate index, a closely followed indicator for economic development in Germany. The business climate index is forecast to rise to 107.7 from 106.7, adding further evidence the German economy was regaining momentum following a midyear slump.

On Tuesday the Federal Statistics Office is expected to confirm Germany’s Q4 GDP growth at 0.7 percent, unchanged from the preliminary estimate. Year-on-year, this translates into an annualized gain of 1.6 percent. Fourth quarter growth more than doubled forecast and was a significant improvement over the third quarter’s 0.1 percent uptick.

Separately, Eurostat will post final Eurozone CPI figures for January. Eurozone consumer prices plunged 0.6 percent annually in January, the sharpest decline since July 2009, Eurostat reported last month in a preliminary estimate.

On Thursday Germany will publish official employment figures for February. The number of workers unemployed is forecast to drop by another 10,000 in February. The unemployment rate is forecast to hold at 6.5 percent.

Separately, Eurostat will release several economic indicators on Thursday, including business confidence, industrial confidence and economic sentiment.

Germany and other Eurozone member states will close out the week with preliminary estimates of February CPI. Germany’s harmonized index of consumer prices declined 0.5 percent in January, the first time in more than five years inflation turned negative for Europe’s largest economy.

Eurozone inflation will probably remain negative in the first half of the year before gradually recovering later on, aggravating concerns about the currency bloc’s nascent recovery. Persistently weak inflation also raises concerns about the ECB’s €1 trillion bond buying program, which has designed to shore up consumer prices and promote economic growth.

The ECB will hold its next monetary policy meetings in early March.

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The financial markets were on edge on Tuesday, as the pressure mounted on Eurozone finance ministers to reach an agreement over Greece’s loan program.

Greek and Eurozone finance ministers resumed talks in Brussels on Tuesday, where a war of words between Greece and Germany escalated, stoking concerns both sides were still far apart on a settlement. The European Union has given Greece until the end of the week to extend its current bailout program or risk losing financial aid. Athens has vowed not to extend the current bailout program and is seeking a six-month bridging loan to finance essential government activities. Greece’s €240 billion bailout program is due to expire on February 28.
Greece’s newly elected Prime Minister Alexis Tsipras said on Tuesday his government would give in to “blackmail” and would instead begin to enact new laws to reverse the bailout conditions. Tsipras told his Syriza party that the government would not compromise with Greece’s troika of lenders.

“We are not in a hurry and we will not compromise,” Tsipras told his far-left party’s lawmakers.

He added, “We are working hard for an honest and mutually beneficial deal, a deal without austerity, without the bailout which has destroyed Greece in recent years, a deal without the toxic presence of the troika.”

German finance minister Wolfgang Schaeuble reiterated his take-it-or-leave-it message, putting the pressure squarely on Athens to extend the troika’s loan program.

“The question still remains if Greece wants a program at all or not,” Schaeuble told reporters in Brussels after a second day of meetings.

Dutch finance minister and Eurogroup president Joroen Dijsselbloem echoed Shaeuble’s words and insisted that Athens seek an extension.

“It’s really up to the Greeks. We cannot make them or ask them,” he stated.

While the prospects of an agreement remain dim, the European Central Bank is not expected to cut off funding to cash-strapped Greek banks this week, according to sources. The ECB insists that Greece will remain part of the euro.

The euro rebounded on Tuesday, as investors disregarded the latest collapse in Greece bailout talks after German investor sentiment reached a 12-month high in February. ZEW’s economic sentiment index climbed 4.6 points to 53.0, as the current situation sub-index more than doubled to 45.5.

The EUR/USD climbed to an intraday high of 1.1445 on Tuesday. It would subsequently consolidate at 1.1394, advancing 0.45 percent.

The euro also rebounded against the British pound, as the EUR/GBP rose 0.54 percent to 0.7426.

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Greece and its Troika of international lenders resumed talks on Friday after the Hellenic Republic failed to reach an agreement with its European partners at Wednesday’s ministerial meetings.

Talks between Greece and Eurozone finance ministers broke down on Wednesday after both sides failed to reach a political agreement on how to keep Greece financed past February. According to Eurogroup President Jeroen Dijsselbloem, no “common ground” was reached that would allow both sides to move forward.

“We need a political decision before the financial institutions can get to work. We might make the final progress we need at next Monday’s Eurogroup meeting,” Dijsselbloem said after Wednesday’s Eurogroup meetings.

The newly appointed Greek government headed by Alexis Tsipras has vowed to renegotiate his country’s €240 billion bailout plan and put an end to “cruel” austerity. His far-left Syriza party successfully campaigned on the platform of “anti-austerity,” promising its voters to raise the minimum and cut taxes. Syriza secured 149 of 300 seats in the Hellenic Parliament in January’s snap elections.

Monday’s ministerial meetings could be the last moment for the newly elected Greek government to ask for an extension of the current bailout program, which expires February 28. Mr. Tsipras said on Monday his country would not seek an extension of the current bailout, but would instead focus on finding a new agreement. Given the breakdown in talks on Wednesday, the Greek government may seek a “technical” extension to shore up support for broader reforms in the future. Sources close to the talks suggest Greece could ask for a longer bridge loan through August to cover the government’s immediate funding needs.

Despite suffering an immense economic collapse during the Great Recession, Greece is still part of the Eurozone’s long term plan, a sign European lawmakers are willing to consider relaxing some of the bailout terms. Greece’s exit from the Eurozone, it is feared, could trigger a mass exodus from the fledgling currency union.

In economic data, Greece’s economy shrank once again in the fourth quarter, official data revealed today. Greece’s gross domestic product declined 0.2 percent quarter-on-quarter, following an increase of 0.7 percent in the July to September period.

Meanwhile, the Eurozone economy expanded 0.3 percent in the fourth quarter, following a 0.2 percent increase in the second quarter. A median estimate of economists called for an increase of 0.2 percent. In annualized terms, Eurozone GDP expanded 0.9 percent, official data showed.

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