Forex - EUR/USD weekly outlook: February 25 - March 1

The euro hit six-week lows against the dollar on Friday after the European Central Bank said lenders would repay less than half of the expected amount in emergency loans, while uncertainty ahead of Italian elections also weighed.

EUR/USD hit 1.3147 on Friday, the pair’s lowest since January 10, before settling at 1.3188, 0.01% lower for the day and down 1.22% for the week.

The pair is likely to find support at 1.3038, the low of January 10 and resistance at 1.3289, Thursday’s high.

The ECB said banks are to pay back EUR61 billion of the funds they borrowed as part of the bank’s second long-term refinancing operation one year ago, about half what the market had expected.

The announcement cast doubts over the health of the European banking sector and undermined investor confidence in the euro zone.

Investors also remained wary ahead of the outcome of the upcoming general elections in Italy, amid wariness that a hung parliament could hamper efforts to implement further economic reforms.

Elsewhere, the European Commission said Friday that it expects the euro zone economy to contract for a second year in 2013, shrinking 0.3%, down from a forecast for growth of 0.1% six months ago.

However the single currency found support after the Ifo index of German business climate jumped to 107.4 from 104.3 in January, outstripping expectations for a reading of 105.0.

The dollar remained supported after Wednesday’s minutes of the Federal Reserve’s most recent policy meeting indicated that the bank may wind down its bond-buying program sooner than expected.

The minutes of the Fed’s January meeting showed that policymakers discussed the slowing or stopping of bond purchases even before the job market improves, amid concerns that the policy could cause instability in financial markets.

In the week ahead, testimony on monetary policy by Fed Chairman Ben Bernanke in Congress will be closely watched, while investors will also be awaiting political developments in Italy. Data on economic growth from the U.S. and euro zone inflation will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, February 25

In the euro zone, voting in Italy’s general elections will take place for a second day.

Tuesday, February 26

The U.S. is to release a report on consumer confidence, as well as official data on new home sales, a leading indicator of economic health. The U.S. is also to release industry data on house price inflation. 

In addition, Fed Chairman Ben Bernanke is to testify on monetary policy before the Senate Banking Committee, in Washington DC.

Wednesday, February 27

The euro zone is to produce official data on M3 money supply, as well as the Gfk report on German consumer climate, a leading indicator of consumer spending. Italy is to hold an auction of 10-year government bonds.

The U.S. is to produce official data on durable goods orders, pending home sales and crude oil inventories. Meanwhile, Fed Chairman Ben Bernanke is to testify on monetary policy before the Senate Banking Committee for a second day, in Washington DC.

Thursday, February 28

The euro zone is to release official data on consumer price inflation, which accounts for the majority of overall inflation. Meanwhile, Germany is to produce preliminary data on CPI and data on the change in the number of people unemployed in the previous month. France is to release government data on consumer spending.

Later Thursday, the U.S. is to release revised data on fourth quarter economic growth, in addition to the weekly government report on initial jobless claims and official data on manufacturing activity in Chicago.

Friday, March 1

In the euro zone, Germany is to publish official data on retail sales.
The U.S. is to round up the week with a report from the Institute of Supply Management on manufacturing activity, official data on personal spending and revised data on consumer sentiment from the University of Michigan.

Fed Chairman Ben Bernanke is to speak in San Francisco; his comments will be closely watched for indications on the future possible direction of monetary policy.