Forexpros – The euro rebounded from a four-month low against the U.S. dollar on Friday, as concerns over the political crisis in Greece subsided, supporting demand for the single currency.
EUR/USD hit 1.2641 on Friday, the pair’s lowest since January 16; the pair subsequently consolidated at 1.2777 by close of trade, still down 0.97% on the week.
The pair is likely to find support at 1.2641, Friday’s low and a four-month low and resistance at 1.2868, last Tuesday’s high.
The euro found support after an opinion poll in Greece indicated that pro-bailout party, New Democracy was leading the polls ahead of elections, due to be held on June 17.
The euro had been pressured broadly lower as fears over the possibility of a Greek exit from the euro zone dominated market sentiment, after cross party talks aimed at forming a coalition government failed, following a May 6 election which left no party with a clear majority.
The political deadlock fuelled speculation that the country would not be able to access further financial aid and could eventually be forced out of the euro zone.
The single currency also found support ahead of a weekend meeting of the G8 Group, amid expectations that world leaders would offer support to the European Union.
Earlier in the week, European Central Bank President Mario Draghi acknowledged the possibility of a Greek exit from the euro zone for the first time. Speaking in Frankfurt, Draghi said that while the ECB’s “strong preference” was that Greece remain in the euro area, the ECB would continue to preserve the integrity of its balance sheet.
Meanwhile, concerns over the health of Spain’s banking system and the prospect of more state bailouts for lenders saw the country’s borrowing costs climb above 6% last week. On Thursday, ratings agency Moody’s cut the credit ratings of 16 Spanish banks.
In the U.S., Wednesday’s minutes of the Federal Reserve’s May meeting indicated that several policymakers remained open to further efforts to stimulate the U.S. economy if growth falters or if the risks to the economy became great enough.
Data on Thursday showing that manufacturing activity in the Philadelphia-region contracted for the first time in eight months in May added to concerns over the pace of the U.S. economic recovery.
The Federal Reserve Bank of Philadelphia said that it’s manufacturing index dropped by 14.3 points to minus 5.8 in May from the previous months reading of 8.5.
Analysts had expected the index to rise by 1.5 points to 10.0 in May.
A separate report showed that the number of people who filed for unemployment assistance in the U.S. in the week before last held steady at a seasonally adjusted 370,000, confounding expectations for a decline of 5,000 to 365,000.
In the week ahead, investors will be watching euro zone manufacturing data, amid expectations that activity remains weak, which would increase the chances of more economic stimulus from the ECB.
Market participants will also be awaiting U.S. data on manufacturing orders, as they attempt to gauge the strength of the U.S. recovery.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on the day.
Tuesday, May 22
The U.S. is to release industry data on existing home sales, a leading indicator of economic health.
Wednesday, May 23
The euro zone is to publish official data on the current account, which is closely linked to currency demand.
The U.S. is to produce government data on new home sales, a leading indicator of economic health, as well as official data on crude oil stockpiles.
Thursday, May 24
The euro zone is to produce preliminary data on manufacturing and service sector growth, while Germany and France are also to release individual reports. Germany is also to release revised data on first quarter gross domestic product and a report on business climate. Later in the day, ECB president Mario Draghi is to speak; his comments will be closely watched for any indication of the future possible direction of monetary policy.
Also Thursday, the U.S. is to release official data on core durable goods orders and a separate report on initial jobless claims, both leading indicators of economic health.
Friday, May 25
In the euro zone, market research group Gfk is to release data on German consumer climate, which is an important indicator of consumer spending.
The U.S. is to round up the week with revised data from the University of Michigan on consumer sentiment and inflation expectations.
Forexpros
