Forexpros – The euro rose to a three-day high against the U.S. dollar on Friday, after posting its biggest weekly drop in more than three months as risk sentiment slightly recovered amid signs of progress in handling the euro zone’s debt crisis.
EUR/USD hit 1.2945 on Wednesday, the pair’s lowest since January 11; the pair subsequently consolidated at 1.3041 by close of trade on Friday, tumbling 2.53% over the week.
The pair is likely to find support at 1.2944, the low of December 14 and resistance at 1.3236, the high of December 13.
The single currency fell to an 11-month low against the greenback on Wednesday amid speculation over mass credit downgrades in the euro zone as an agreement reached earlier in the month disappointed expectations for a comprehensive solution to resolve the region’s debt crisis.
But the euro found support after an action of Spanish government debt on Thursday met with solid investor demand.
The country sold EUR2.5 billion of five-year bonds at an average yield of 4.02%, down sharply from 5.27% at a similar auction last month. Spain also auctioned EUR1.4 billion of 10-year bonds at a yield of 5.54%, compared to 6.97% last month.
Market sentiment also improved on Thursday after broadly better-than-expected U.S. data on employment and manufacturing.
The U.S. Department of Labor said that the number of individuals filing for initial jobless benefits last week fell to a three-year low of 366,000.
But sentiment remained under pressure after the European Central Bank’s monthly report said the debt crisis in the region still posed a substantial threat to the economic outlook.
The euro extended gains on Friday after European Union leaders unveiled a new agreement to tighten fiscal rules in the euro zone, in order to strengthen economic integration and tackle the region’s financial crisis.
Also Friday, the head of the euro zone’s bailout fund, the European Financial Stability Facility, announced that around EUR600 billion are available to fight the region’s debt crisis, a greater amount than Italy and Spain’s combined funding needs for 2012, and more will be provided in March if needed.
Gains were limited, however, after Fitch Ratings announced that it lowered France’s rating outlook and put six other euro zone members on review for a downgrade, saying that a “comprehensive solution” to the euro-zone crisis is “technically and politically beyond reach.”
In the week ahead investors will be keeping a close watch on Tuesday’s report on German business climate, to assess the impact of the debt crisis on the region’s largest economy. Meanwhile, the U.S. is to release key reports on the housing sector, durable goods and jobless claims.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, December 19
The euro zone is to produce official data on the current account, while later in the day, ECB President Mario Draghi is to speak; his comments will be closely watched for any hints on the future direction of monetary policy.
Tuesday, December 20
In the euro zone, Germany is to release official data on producer price inflation, consumer climate and business climate.
Later Tuesday, the U.S. is to publish official data on building permits, an excellent gauge of future construction activity, as well as a report on housing starts.
Wednesday, December 21
The U.S. is to produce industry data on existing home sales, a leading indicator of economic health, as well as data on crude oil stockpiles and the treasury currency report.
Thursday, December 22
The U.S. is to publish its weekly report on initial jobless claims, a leading indicator of economic health. The country is also to produce revised data on third quarter GDP, while the University of Michigan is to release revised data on consumer sentiment and inflation expectations.
Friday, December 23
The U.S. is to round up the week with official data on durable goods orders, a leading indicator of production as well as data on personal spending income, personal spending and new home sales.
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