Short covering fuelled a continuation of the relief rally in the euro on Friday, as European policy makers endorsed a short-term solution for Greece.

Chancellor Angela Merkel retreated from German demands that bondholders be forced to shoulder a ’substantial‘share of the Greek rescue, saying she’ll work with the ECB to avoid disrupting markets. The focus now turns to the EU Finance Ministers’ meeting currently taking place; the market will be poised to act on any new developments. From a technical perspective, EUR/USD rallied right back up to strong resistance around the 1.4330 level, which is the neckline of a major head and shoulders reversal pattern. With the current proposals largely seen as another ‘bandaid’ solution, there’s likely to be further weakness in the euro as the market fears contagion.

Moody’s move on Friday to put Italy’s aA2 credit rating on review for possible downgrade did little for overall sentiment. Tonight, the market will be focussing on developments from the ECOFIN meetings as well as the latest reading into German PPI due at 4pm (Melbourne time). As it stands, the market is expecting a rise of 0.2% following last month’s gain of 1%. EUR/USD has weakened through the Asian session and is currently trading around the 1.4240 mark.