However, late in the trading day, the common currency recovered earlier losses to end trading in New York in the 1.3130/40 price zone for a third successive day. "One catalyst for the rally was comments by Merkel that she would not accept a Greek default, implying that another Greek bailout will get done," says Sean Lee, Editor at ForexLive.

“We are entering into a fairly critical 24 hours for Greece,” writes Jim Reid, a strategist at Deutsche Bank AG in London. “The focus has shifted from the private sector involvement negotiations toward the lack of political consensus and whether the interim coalition government will accept the conditions” for a second bailout package, according to Mr. Reid. German Chancellor Angela Merkel has said that a Greek bankruptcy is unacceptable, but a second package will come only if the sustainability of finances is guaranteed.

On Monday, Citigroup raised its estimate of the likelihood of a Greek exit from the euro area over the next 18 months to 50% from a previous range of 25-30% according to the bank’s “Global Economics View” insight by Willern Buiter and Ebrahim Rahbari. Greek PM Papademos has asked for a government paper to be produced that outlines the consequences of Greece dropping out of euro zone.

Mon, Feb 06 2012, 22:08 GMT | FXstreet.com