Forexpros – The euro rallied to a six-week high against the U.S. dollar on Friday, amid optimism that Greece and its creditors would reach an agreement on a debt swap deal, while weaker-than-forecast U.S. data also weighed on the dollar.
EUR/USD hit 1.3232 on Friday, the pair’s highest since December 13; the pair subsequently consolidated at 1.3218 by close of trade, advancing 2.57% over the week.
The pair is likely to find support at 1.3077, Friday’s low and resistance at 1.3348, the high of November 30.
On Friday, European Union economic affairs chief Ollie Rehn said a deal on reducing Greece’s private sector debt was “imminent” and could be completed by next week.
An agreement is necessary for Greece to secure the next tranche of bailout funds in order to prevent a sovereign debt default. Greece does not have enough money to cover a EUR14.5 billion bond repayment due March 20.
The euro continued to hold gains after Fitch Ratings downgraded Italy, Spain, Belgium, Cyprus and Slovenia’s sovereign debt ratings, saying they lack financing flexibility in the face of the regional debt crisis.
The greenback came under pressure after official data showed that the U.S. economy grew more slowly than expected in the fourth quarter of 2011.
The Commerce Department said U.S. gross domestic product expanded by 2.8% in the three months to December, the fastest quarterly rate in one-and-a-half years, but disappointing expectations for an increase of 3%.
Earlier in the week, Federal Reserve Chairman Ben Bernanke pushed back the timing of a possible interest rate increase until late 2014 on and indicated that the bank may embark on a third round of quantitative easing.
At the conclusion of the central bank’s policy setting meeting on Wednesday, Bernanke said that policy makers were “prepared to provide further monetary accommodation” and added that bond buying is “an option that’s certainly on the table.”
Meanwhile, the cost of insuring Portuguese government debt against default surged to a fresh euro-era highs on Friday, underling concerns over the threat possible default. Portugal’s borrowing costs have been rising steadily since ratings agency Standard & Poor’s downgraded the country’s bonds to junk status earlier this month.
In the coming week, investors will be closely watching developments in Greece as well as the outcome of Monday’s EU summit. Also Monday, Italy is to hold an auction of long term government bonds, in what will be an important test of demand for the country’s debt.
In addition, the U.S. is to publish data on service and manufacturing sector growth while Friday’s data on non-farm payrolls will be an important gauge of the recovery in the labor market.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, January 30
The euro zone is to produce preliminary data on German consumer price inflation, which accounts for a majority of overall inflation. Meanwhile, European Central Bank and EU officials are to meet in Brussels for an economic summit.
The U.S. is to publish government data on personal consumption expenditure, a leading indicator of inflation, followed by data on personal spending, which accounts for a majority of overall economic activity.
Tuesday, January 31
In the euro zone, Germany is to publish official data on retail sales, the leading indicator of consumer spending, which accounts for the majority of overall economic activity. The country is also to publish data on employment change. Meanwhile, the euro zone is to publish a report on the unemployment rate.
The U.S. is to produce government data on employment cost inflation, a key gauge of consumer inflation, followed by industry data on house price inflation and the purchasing managers’ index in Chicago. The country is also to release data on consumer confidence.
Wednesday, February 1
The euro zone is to publish preliminary data on consumer price inflation, which accounts for a majority of overall inflation.
Later Wednesday, the U.S. is to release industry data on non-farm employment change, an important indicator of consumer spending. The country is also to produce a report by the Institute for Supply Management on manufacturing activity, followed by government data on crude oil stockpiles.
Thursday, February 2
The U.S. is to produce government data on unemployment claims as well as preliminary data on nonfarm productivity and unit labor costs. Later in the day, Fed Chairman Ben Bernanke is to testify on the economic outlook and federal budget situation before the house budget committee.
Friday, February 3
The euro zone is to publish official data on retail sales.
The U.S. is to round up the week with official reports on non-farm employment change and the country’s unemployment rate. The country is also to release official data on average hourly earnings and factory orders, as well as a report by the Institute for Supply Management on service sector activity.
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