By ForexMansion.com

 

The EUR/USD continued to fluctuate heavily and yet again ended with a strong weekly gain for the second consecutive week on interest rate bets.

Last week, the euro gained further momentum with the Feds pledging to keep rates low and taking a dovish stance to support the economy, sending the dollar to its lowest in three years as gauged by the dollar index.

The Feds call the rise in inflation “temporal†while the ECB started to warn of “second-round effects†the difference is evident on the pair and supporting the euro for more gains on rate bets.

Support was further seen with the rise in inflation above forecasts in the euro area in April. On Friday the Eurostat estimate reported 2.8% annual rise in inflation bolstering the expectations for more monetary tightening by the ECB.

This week, the focus will be surely on the ECB and Trichet’s comments and whether he will include “strong vigilance†in the statement as they are expected to keep rates steady this month after raising rates in April to 1.25%.

Further volatility will be seen for the pair with the focus on Friday’s infamous jobs report from the US. The market started to fluctuate with the end of last week on signs that the global recovery might be loosing momentum after US growth missed estimates and slowed to 1.8% with other nations reporting downbeat figures.

The volatility will remain high again this week with investors worried about the rapid drop for the dollar and the uncertainty over the outlook for growth and inflation.

Highlights for the week ahead for the EUR/USD will be:

Monday May 02:

Many European markets will be out for Labor Day which might increase the volatility, but we still have data on queue.

The final PMI Manufacturing estimate for April is awaited at 07:55 GMT and expected unrevised at 61.7. From the Euro area the PMI Manufacturing is also expected unrevised for April at 57.7 due 08:00 GMT.

From the US we have construction spending for March at 14:00 GMT and expected with 0.3% rise following 1.4% drop. ISM Manufacturing is also due the same time for April and expected with a slight drop to 59.6 from 61.2.

Tuesday May 03:

More inflationary data is due from the euro area, where the Producer Price Index for March is expected with a slight decline, though we saw consumer prices rally which might come above forecasts. PPI due at 09:00 GMT expected with 0.6% rise in March to an annual 6.5% following 0.8% and 6.6% respectively.

From the US we have Factory Orders for Mach at 14:00 GMT and expected with a rebound by 1.7% following the previous 0.1% decline.

Wednesday May 04:

Germany starts at 07:55 GMT with the final PMI Services for April and expected unrevised at 57.5. From the euro area at 08:00 GMT the final Composite PMI and Services PMI are also expected unrevised for April at 57.8 and 56.9 respectively.

Retail sales for the euro area follow at 09:00 GMT for March and expected with 0.1% rise following 0.1% drop though likely to remain low after we saw the nation’s sales drop on inflation and rising commodity prices which crunched spending.

From the US the focus will be on the first clue for the US jobs report. The ADP Employment Change is due at 12:15 GMT and expected to show 200,000 added private jobs after 201,000 thousand. At 14:00 GMT we have the Services PMI for April and expected higher at 58.0 from 57.3.

Thursday May 05:

We have German Factory orders at 10:00 GMT for March and expected with 0.6% rise following 2.4% rise yet the focus will be on the ECB.

The European Central Bank (ECB) will announce the rate decision at 11:45 GMT and expected to keep rates steady at 1.25% after April’s hike. The focus will be on Trichet’s press conference at 12:30 GMT and whether he will say “strong vigilance†or not to signal a hike in June as investors turn strongly hawkish on the ECB and bullish on the euro.

At 12:30 GMT the U.S economy will release the weekly initial claims numbers, where the number of people filing for first-time claims for state unemployment insurance has reached 429 thousand.

Friday May 06:

Germany will release March industrial production at 10:00 GMT and expected with 0.5% rise following 1.6% to an annual 10.3% from 14.8%.

Still, the focus on Friday will be on the United States and the infamous jobs report. The non-farm payrolls at 12:30 GMT is expected to show the U.S. economy added 196 thousand jobs during the month of April compared with the previous 216 thousand jobs.

Unemployment rate during the month of April is expected to settle at 8.8% while the yearly average hourly earnings index is expected to rise by 1.7%.

Any improvement in new jobs in the United States could drive more gains for the euro versus the dollar and send EUR/USD higher on improved risk appetite and eased woes over the outlook for the global recovery amid bets on ECB rates rather than the Feds. 

Originally posted here

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