TOKYO—The euro struggled for a direction on Monday in Asia, at the start of a pivotal week for the euro zone, as market participants await additional measures to be taken by European leaders to prevent further escalation of the European sovereign debt crisis, with a Franco-German summit slated for later in the global day.
The euro gained modestly versus the dollar and the yen earlier in the day after Italian Prime Minister Mario Monti, in his first test since taking office two weeks ago, outlined a three-year plan comprising tax increases, spending cuts, pension overhauls and growth-boosting measures.
Still, the common currency soon lost steam as Asian stock markets were mixed despite solid U.S. non-farm payroll data on Friday that failed to further improve risk-sentiment, dealers said.
German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet later in the day, ahead of the European Union's two-day summit starting on Thursday.
"If they offer a future direction (for the euro zone) that makes sense to the market, that will be viewed favorably," said Tsunemasa Tsukada, chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking. "But, putting a broad plan to one side, if they show differing opinions on the details, that will likely heighten uncertainty."
Ms. Merkel is so far defying pressure from Mr. Sarkozy to stop the capital flight from euro-zone government bond markets by resorting to radical measures, such as giving a green light to the European Central Bank for massive bond-market intervention.
"Various people involved are giving a wide range of comments these days," Mitsubishi UFJ Trust and Banking's Mr. Tsukada said. "We want real evidence that European leaders have a definitive plan," he said.
Masafumi Yamamoto, chief currency strategist at Barclays Bank in Tokyo, said the euro has upside risk, given the excessively large positions in the market betting for a decline in the common currency, which makes investors vulnerable to any euro-positive cue.
Meanwhile, the dollar remained firm versus the yen, benefiting from bids for the greenback for year-end funding reasons, said Citibank Japan chief FX strategist Osamu Takashima.
The euro was at $1.3405 as of 1:50pm local time in Tokyo, from $1.3392 late on Friday in New York, and was at Y104.55 from Y104.40, according to EBS. The dollar was at Y77.98 from Y77.94 and at 0.9225 Swiss francs from 0.9219 Swiss francs. The U.K. pound was at $1.5601 from $1.5613.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 78.617 from 78.636.
