Forexpros – The euro fell against the U.S. dollar on Friday, paring some of the week’s gains as the downgrade of Spain’s sovereign credit rating and ongoing concerns over the debt crisis in the euro zone weighed on demand for the single currency.
EUR/USD hit 1.2624 on Thursday, the pair’s highest since May 23; the pair subsequently consolidated at 1.2513 by close of trade on Friday, rising 0.77% over the week.
The pair is likely to find support at 1.2434, Friday’s low and resistance at 1.2624, Thursday’s high.
The euro tumbled to a three-day low against the greenback after rating’s agency Fitch cut Spain’s credit rating by three notches to triple-B on Friday, and indicated that further cuts could still be made as the country struggles to stabilize its fragile banking system.
The downgrade came as senior European Union officials prepared to discuss options for financial aid to Madrid in a telephone conference on Saturday morning.
Sentiment on the single currency was also hit after official data showed that German imports fell by the most in two years in April, dropping 4.8%, fuelling concerns over the impact of the euro zone crisis on the region’s largest economy.
A separate report showed that Italian industrial production fell 1.9% in April, far outstripping expectations for a 0.5% decline.
Investors also remained cautious after China announced a surprise interest rate cut on Thursday, which some market participants took as a sign that the world’s second largest economy may be slowing more than previously thought.
Meanwhile, the greenback found support after Federal Reserve Chairman Ben Bernanke warned on Thursday that the U.S. economy faced “significant risks” arising from the crisis in Europe, but refrained from indicating that the central bank was prepared to implement any fresh stimulus measures.
In testimony to a congressional committee in Washington, Bernanke said that the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses on the financial system escalate, but stopped short of indicating what these actions might be.
Earlier in the week, European Central Bank head Mario Draghi also disappointed markets hoping for fresh stimulus measures in order to calm investor nerves over the escalating crisis in the euro zone.
Draghi said the bank would extend its policy of lending to banks until mid-January 2013 but didn’t announce any new three-year lending operations. The ECB left euro zone interest rates unchanged at 1%, in a widely expected decision.
In the week ahead, markets will be keeping a close eye on developments in Spain, as Madrid begins to hammer out the details of a rescue package for its banks, while uncertainty over the outcome of Greek elections on June 17 is likely to weigh.
Investors will also be eyeing rate Wednesday’s U.S. retail sales data, as investors try to gauge the strength of the country’s economic recovery.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, June 11
In the euro zone, official data is to be published on French industrial production, a key gauge of economic health.
Tuesday, June 12
The U.S. is to publish official data on import prices as well as a government report on the federal budget balance.
Wednesday, June 13
The euro zone is to release official data on industrial production, while Germany is to hold an auction of 10-year government bonds.
Later Wednesday, the U.S. is to release official data on retail sales, the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. The country is also to produce data on producer price inflation, business inventories and crude oil stockpiles.
Thursday, June 14
The euro zone is to release official data on consumer price inflation, which accounts for the majority of overall inflation. Meanwhile, the ECB is to produce its monthly bulletin, which reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions.
Also Thursday, the U.S. is to produce official data on consumer price inflation and the country’s current account, as well as a government report on initial unemployment claims.
Friday, June 15
In the euro zone, ECB president Mario Draghi is to speak; his comments will be closely watched for any indication of the future possible direction of monetary policy.
The U.S. is to round up the week with official data on manufacturing activity in the New York area, the capacity utilization rate and industrial production. The country is also to release preliminary data by the University of Michigan on consumer sentiment and inflation expectations.
Forexpros
