Forexpros – The U.S. dollar pushed higher against the safe haven yen on Friday, paring some of the week’s losses after European leaders reached an agreement on measures to directly recapitalize the region’s banks and bring down Spanish and Italian borrowing costs.
USD/JPY hit 79.12 on Friday, the pair’s lowest since June 20; the pair subsequently consolidated at 79.77 by close of trade, down 0.80% on the week.
The pair is likely to find support at 79.12, Friday’s low and resistance at 80.61, last Monday’s high and a two-month high.
Markets rallied after European Union leaders agreed to use the euro zone’s bailout funds to support struggling banks directly, without adding to national debt and also agreed to set up a joint banking supervisory body for the euro area.
In addition to the direct recapitalization of Spain’s banks, euro zone bailout funds will be able to purchase government debt in order to keep down borrowing costs.
Announcing the deal, EU Council President Herman Van Rompuy called the accord a “breakthrough” and said it would break the “vicious circle” between banks and national governments.
Following the announcement, the yield on Spanish 10-year bonds fell back to 6.32%, after rising to the critical 7% level on Thursday, while the yield on Italian 10-year bonds eased back below 6%.
The yen had strengthened against the greenback ahead of the summit on Thursday and Friday as expectations for concrete progress on tackling the sovereign debt crisis had faded in the run up to the talks.
The euro rallied against the yen on Friday, jumping 2.20% to settle at a six-day high of 101.03.
In the week ahead, investors will be closely watching the outcome of the European Central Bank’s policy meeting on Thursday, amid growing expectations for a rate cut to support the faltering euro zone economy.
In the U.S, markets will be closed on Wednesday for the Independence Day holiday, while the country is to release official data on nonfarm payrolls report on Friday, after disappointing results in June sparked concerns over the strength of the U.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, July 2
Japan is to publish data on the Tankan manufacturing and non-manufacturing indexes, leading indicators of economic health.
In the U.S., the Institute for Supply Management is to release a report on activity in the manufacturing sector.
Tuesday, July 3
Japan is to publish government data on average cash earnings, an important inflationary indicator.
Later in the day, the U.S. is to publish official data on factory orders, a leading indicator of production.
Wednesday, July 4
Markets in the U.S. are to remain closed for the Independence Day holiday.
Thursday, July 5
The U.S. is to publish a report by payroll processing firm ADP on non-farm employment change, followed by government data on unemployment claims. The country is also to release an ISM report on service sector growth, as well as government data on crude oil stockpiles.
Friday, July 6
The U.S. is to round up the week with official data on non-farm employment change and the unemployment rate, as well as data on average hourly earnings, an important indicator of consumer inflation.
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