The Euro reversed some of its earlier losses in the forex market overnight, helped by positioning ahead of key data reports from the U.S. and Japan later this week as well as the Easter holidays.

The Euro bounced back to $1.3461 from $1.3413 late last night in New York. At one stage, the Euro sank as far as $1.3384 before staging a rebound as market attention was distracted by other developments. The single currency also rose to 125.68 Yen from 124.47 Yen.

Concern over Greece’s ability to fund its budget deficit at a reasonable cost remains the prime factor driving market sentiment, but hopes that U.S. employment numbers will show a strong improvement and encourage speculation of a rise in U.S. interest rates is providing financial markets with some stability.

The limited success that Greece had Tuesday when it returned to the debt market with a 12-year bond drove home the problems that the country still faces despite the emergency funding program announced last Thursday by the European Union and the International Monetary Fund.

Elsewhere in the EU the International Monetary Fund has cut its 2010 growth projection for Germany. The IMF now expects Europe’s largest economy to grow by 1.2% this year, down from its previous prediction of 1.5%.

The IMF highlighted weakness in the German banking sector and chances of lower than expected levels of global trade as reasons for the downward revision. The German economy emerged from recession last year but failed to grow in the final quarter of 2009.

In its report, the IMF said the German economy faced “substantial downward risks” in 2010, and that “economic recovery is likely to be moderate and fragile”. The German government is currently more optimistic, predicting that the economy will grow 1.4% this year, while the country’s central bank expects expansion of 1.6%.

However, the IMF’s more cautious opinion is shared by the Organization for Economic Co-operation and Development, which last week said it expected the German economy to grow by only 1.1% this year. The IMF now expects the German economy to expand by 1.7% in 2011, down from its previous forecast of 1.9%.

Recent figures showed that German exports fell 6.3% in January, on a seasonally adjusted basis, compared with December. However, much of this decline was blamed on Germany experiencing its coldest weather in two decades, which hit the transportation of goods.

The Euro slid to a 10 month low of EUR 1.3344 against the US Dollar during overnight trade on the forex market as EU leaders now appear to be in favor of International Monetary Fund assistance for Greece. The single currency could face increased volatility over the rest of the week as the EU begins its Brussels summit tomorrow.

At the same time, Fitch Ratings downgraded Portugal’s sovereign credit rating to AA from AAA against a “backdrop of relative macroeconomic and structural weakness” and maintained a negative outlook for the region as European policy makers expect to see an uneven recovery this year.

Sterling has extended its decline from yesterday to reach a low of GBP 1.4897 against the US Dollar but continued to maintain the narrow range carried over from the previous month ahead of the 2011 Budget Statement due out at 12.30 GMT.

Chancellor of the Exchequer Alistair Darling is likely to maintain his pledge to support the economy as the private sector remains weak. He may also reveal how he plans to halve the budget deficit over the four years as policy makers continue to see a risk for a protracted recovery.

Meanwhile, former Bank of England board member David Blanchflower said that if the U.K. lost its AAA credit rating, the market reaction to the downgrade may not be as “monumental” as some expected. He also said that the government should continue to support economy as the labor market remains weak.

The US Dollar has continued to appreciate across the board, with the USD/JPY breaking out of its recent range to a fresh monthly high of JPY 91.28. Core durable goods orders out today are expected to show that demand for U.S. durable goods has increased 0.6% in February after expanding 3.0% the previous month, while new home sales are projected to increase 1.9% during the same period following the 11.2% contraction in January.

The data would reinforce sentiment of an improved outlook for global growth, which would stoke increased volatility in the major exchange rates. For now it would appear that fundamental developments will be playing an increased role in the coming months as the Federal Reserve aims to normalize policy this year.

The creation of the Euro can be considered Europe’s greatest achievements of the last century – or its worst nightmare.

The Euro, a single currency shared by 16 of the European nations, represents a considerable step towards fulfilling money’s highest purpose- to serve as a medium for exchange, a unit of account, store of value. Unfortunately, the Euro was not created with the objective to fulfill this “higher” purpose. Instead, it was born out of Europe’s comingled ultimate desire to become a global economic and political leader.

In the last decade of the 20th century, Europe, namely France, was convinced that the 21st century would be ruled by the global powers. The United States would of course be the primary global and economic leader, followed by China, Russia and Japan – the individual European nations would not stand a chance to get a seat at this table, since individually their economic and political strength was far too small. However Europe believed that it deserved a place amongst the world’s economic powers- and therefore, 16 nations decided to combine not only their economies but also their political strength. The result of which was a single monetary currency, the “Euro” - the pedestal upon which all of Europe’s political and economic aspirations would lay arrest.

Until recently the Euro fulfilled all that the EU hoped it would. Within the Euro Zone, the single currency facilitated economic transactions across borders, helped to optimize investments as well as brought price transparency, greatly facilitating business within 16-nation bloc; while globally the Euro brought the Euro Zone its long sought economic power.

While the Euro’s strength stems from the combined force of its 16 constituent countries, the Euro weakness lies in the distinct economic and political state of each of these countries. With Greece on the brink of economic disaster, demanding the EU for a bailout, the Euro’s vulnerability to the bad behavior of individual member’s nations calls into question its ultimate dependability…and leaving the single currency towards its ultimate test of survival. How – or even whether - Europe manages to resolve the fundamental conflict between providing financial aid and bailing out certain spendthrift governments will have a crucial impact on the EU and the future of the Euro.

The main issue that it comes down to is where is the separation line between the individual countries’ policies, both economic and political, and that of the EU as whole. On a daily basis, forex investors see the impact of the various Euro Zone countries individual economic data on the value of the Euro. Whenever any EU country, though more specifically Germany and France, release an important economic indicator or index, the value of the Euro fluctuates (the direct depends on whether the report was better or worse than market expectations). However, the fluctuation in the price of the Euro has gone way beyond the minor ups and downs we were used to seeing in the past. Since news broke out that Greece was facing a 12.7% budget deficit, the Euro has plummeted almost 5% against the US Dollar. And with the Euro Zone countries unable to determine a concrete solution to the Greece’s financial situation, the Euro is continuing to spiral down.

The decision that the EU takes in order to solve the Greek “Tragedy”, will inevitably shape the future of the single currency, as well as political structure of the Euro Zone. According to French President Nicolas Sarkozy “We cannot let a country fall that is in the Euro Zone” he told the public earlier this month “there was no point in creating the Euro”. If this is true, and the EU does eventually get its act together and implement a “rescue” for their floundering Mediterranean member, than what next? Inevitably the individual economic policies and political decisions will need to be more tightly coordinated between countries. The Euro Zone nations will in effect be forced to transfer some of their individual power to the EU. Now is the time that Europe needs to speak as one voice, and act in harmony. While the Greek crisis could very well lead to political unity, and further strengthen the EU, it could just as easily lead to a divided Europe, and end its quest to become a global power.

The whole purpose of forging this single currency was to foster a greater economic integration. And the broader notion behind the concept is that economic integration begets political integration. For a continent that has fought two devastating wars between themselves in the last century, it seems a most noteworthy goal. The question is, is it enough?