The huge liquidity injection by the European Central Bank into the region's banks looks to be working, but whether it proves to be the turning point in the euro zone debt crisis that has been roiling global markets or a temporary respite is not yet clear.
The growing prospect of a euro zone recession, especially when compared with the brighter US outlook and signs of a soft landing in China, may provide part of the answer, and the full onset of the fourth quarter earnings season in the coming week the next flashpoint.
"The euro looks weaker due to the looser (European) monetary policy conditions and the better outlook elsewhere, which is working out to be better for riskier currencies," said Paul Robinson, Head of Global FX Research for Barclays Capital.
However, the most immediate risk for investors is Greece, where negotiations over private sector involvement in a restructuring hang in the balance, and frustration is growing with the Greek government's progress on the fiscal front.
"There is still concern about Greece. I'm asked a lot, 'what happens if Greece leaves the euro zone?'," Robinson said.
Greece needs a strong take-up by private creditors in a bond swap plan to slash its debt to more sustainable levels in order to convince the EU and the IMF to keep lending it the cash it needs to avoid a disorderly default.
Talks between Greece and its creditor banks are expected to resume on Wednesday, a government official told Reuters.
Of greater interest to the prospects for euro/dollar and equity markets is the health of the region's economy. Economists have become more negative about the growth outlook for the euro zone in 2012 even though some recent data has eased some fears.
Euromoney's latest global risk survey, which polls over 350 analysts, found that the biggest driver behind rising European sovereign risks in the fourth quarter was a large reduction in the scores for the economic outlook. "This suggests economists views of the economic outlook for the region in 2012 have become more negative since September," Andrew Mortimer, editor of Euromoney Country Risk said. Reuters publishes its G20 economic outlook and global growth poll on Thursday, January 19.
The weakening global economic performance is expected to be fully reflected in the corporate earnings reports due out on both sides of the Atlantic in coming weeks, but so too will be the growing divergence between the two regions.
"Forecasts for year-on-year earnings growth in the fourth quarter should drop from around 20 percent to closer to 10 percent in the US, while for euro zone corporations it will likely still be negative," Dan Morris, market strategist at J. P Morgan Asset Management said.
"Top line growth is likely to be weaker in Europe and its harder for European companies to cut costs such as labour," Morris said.
US earnings reports in the coming week will feature the banks Citigroup, Goldman Sachs, and Bank of America, and technology firms Google and Intel.
On Friday J. P Morgan Chase, the first major US bank to announce results for the quarter, said it had seen a fall in earnings, in line with expectations, due to the impact of the European debt crisis on trading and corporate deal-making.
In Europe updates are due from miners BHP Billiton, Rio Tinto, French power and engineering group Alstom and hedge fund giant Man Group.
European stocks, which suffered a torrid year in 2011, have gained steadily so far this year to test the upper end of the broad range within which they've bounced in volatile fashion since last summer, a trend analysts expect to continue.
Global equities, as measured by the MSCI AC World index fell by 9.2 percent in 2011, the weakest year since 2008, but have gained about three percent so far this year.
Monday is a public holiday in the United States but data due later in the week will include housing starts and existing home sales, both expected to edge up, and producer prices and consumer price index data, which are expected to show subdued inflation.
In Europe most interest will focus on the German January ZEW survey for confirmation of hopes Europe's biggest economy will avoid a recession. UK inflation and unemployment data for December is also due.
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