EUR/USD hit 1.2588 on Thursday, the pair’s highest since July 4; the pair subsequently consolidated at 1.2510 by close of trade on Friday, climbing 1.27% over the week.
The pair is likely to find support at 1.2406, the low of June 28 and resistance at 1.2626, the high of July 3.
Following talks with Greek Prime Minister Antonis Samaras on Friday, Chancellor Merkel said it was up to Greece to show that it could implement the austerity measures agreed with its international creditors, but reiterated that the country should stay in the euro zone.
Investor confidence also weakened after European Central Bank officials said that bank chief Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of the euro zone’s permanent bailout fund, the European Stability Mechanism, before unveiling full details of his plan to buy government bonds. The German ruling is expected on September 12.
Market sentiment had improved earlier in the week, amid growing expectations that the ECB will implement policy measures to help stabilize the euro zone's sovereign debt markets at its next policy meeting in early September.
The euro touched its highest level against the dollar since July 4 on Thursday, following reports that that Spanish government officials were in talks with the euro zone over an aid package.
The reports were subsequently denied by Spain’s deputy prime minister on Friday.
The greenback came under broad selling pressure after Wednesday’s minutes of the Federal Reserve’s August meeting showed that many policymakers think additional easing may be warranted "fairly soon" unless there is evidence of a "substantial and sustainable" strengthening in the economic recovery.
In addition, Fed Chairman Ben Bernanke told a congressional oversight panel on Friday that the U.S. central bank has room to deliver additional monetary stimulus to boost the U.S. economy.
But the dollar remained supported, as a number of U.S. reports released at the end of last week painted a mixed picture the country’s economic recovery, prompting investors to temper hopes for fresh stimulus measures by the U.S. central bank.
In the coming week investors will be looking ahead to a speech by Fed Chairman Bernanke at an annual symposium in Jackson Hole, Wyoming at the end of the week.
In addition, the U.S. is to release revised data on second quarter economic growth, while Italy is to hold an auction of 10-year governments bonds, in what will be an important test of investor appetite for the country’s debt.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, August 27
In the euro zone, the Ifo Institute for Economic Research is to release a report on German business climate, a leading indicator of economic health.
Tuesday, August 28
In the euro zone, Germany is to release data on consumer climate, a leading indicator of consumer spending.
Later in the day, the U.S. is to release a report on consumer confidence, a leading indicator of economic health, as well as industry data on house price inflation.
Wednesday, August 29
In the euro zone, Germany is to release preliminary data on consumer price inflation, which accounts for a majority of overall inflation.
The U.S. is to produce revised data on second quarter gross domestic product, the broadest measure of economic activity and the primary gauge of the economy's health. The country is also to release industry data on pending home sales, as well as official data on crude oil stockpiles and the Federal Reserve’s Beige Book.
Thursday, August 30
In the euro zone, official data is to be produced on German unemployment change. Separately, Italy is to hold a ten-year government bond auction.
The U.S. is to produce official data on personal consumption expenditures and personal spending. In addition, the annual economic symposium in Jackson Hole, Wyoming is set to begin.
Friday, August 31
The euro zone is to publish preliminary data on consumer price inflation, which accounts for the majority of overall inflation, as well as official data on the unemployment rate throughout the single currency bloc. Germany is to produce official data on retail sales, the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
The U.S. is to round up the week with a report on Chicago’s purchasing managers’ index as well as revised data by the University of Michigan on consumer sentiment, as well as official data on factory orders.
Federal Reserve Chairman Ben Bernanke is also scheduled to speak at the Jackson Hole Symposium; his comments will be closely watched for any indications on the future possible direction of monetary policy.
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