Forex - EUR/USD weekly outlook: 03-07 October 2011

Forex News – Last week saw the euro fall sharply against the U.S. dollar ending close to a nine-month low concerns that the debt crisis in the euro zone is deepening weighed on demand for the single currency.

EUR/USD hit 1.3361 on Monday, the pair's lowest since January 18; the pair subsequently consolidated at 1.3384 by close of trade on Friday, falling 1% over the week.

The pair is likely to find support at 1.3252, the low of January 18 and resistance at 1.3600, Friday's high.

The single currency came under pressure on Friday, as an unexpected rise in euro zone inflation for September dampened hopes that the European Central Bank will cut interest rates to shore up the region's economy.

Adding to concerns, China's manufacturing sector posted a contraction for the third consecutive month while German retail sales fell at their sharpest pace in more than four years.

Also Friday, government data showed that consumer spending in the U.S. rose 0.2% in August after a revised 0.7% increase the previous month.

The euro was supported on Thursday, after Germany's parliament ratified a vote to expand the power of the euro zone's bailout fund, the European Financial Stability Facility. The European Commission said the expanded rescue fund is set to be in place by mid-October.

In Greece, Prime Minister George Papandreou’s government continued to attempt to implement unpopular austerity measures, in order to meet fiscal requirements set out under the terms of its bailout agreement.

International inspectors are currently in Athens to decide whether Greece should receive the next tranche of its EUR8 billion aid package.

Meanwhile, in the U.S., data on Thursday showed that the economy grew more than previously estimated in the second quarter. In its final estimate for the quarter, the Commerce Department said gross domestic product grew at annual rate of 1.3%, up from the previously estimated 1.0%.

In the coming week, markets will be closely watching the outcome of Thursday’s policy-setting meeting by the ECB as well as developments in Greece. Meanwhile, Friday’s data on U.S. non-farm payrolls will also be a major focus for the week.

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

Monday, October 3

In the euro zone, markets in Germany are to stay shut for a public holiday.

Later in the day, the U.S. Institute of Supply Management is to publish data on manufacturing activity.

Tuesday, October 4

In the euro zone, financial ministers are to hold a series of meeting in Brussels, to discuss the implementation of a permanent euro zone bailout facility. In addition, European Central Bank President Jean-Claude Trichet is to speak; his comments will be closely watched for clues to the future possible direction of monetary policy.

Later Tuesday, the U.S. is to release official data on factory orders, a leading indicator of production, while Federal Reserve Chairman Ben Bernanke is to speak in Washington.

Wednesday, October 5

The euro zone is also to publish revised data on second quarter GDP, as well as official data on retail sales.

Later in the day, the U.S. is to release a report on non-farm payrolls, compiled by payroll processing firm ADP, which leads government data by two days. Meanwhile, the ISM is to produce a report on service sector activity, a leading indicator of economic health. The country is also to release government data on crude oil inventories.

Thursday, October 6

In the euro zone, Germany is to release official data on factory orders, a leading indicator of production. Later in the day, the ECB is to announce its benchmark interest rate. Traders will be closely watching the post-policy meeting press conference by the bank, to discuss the economic outlook and monetary policy.

Meanwhile, the U.S. is to release its weekly report on initial jobless claims.

Friday, October 7
In the euro zone, Germany is to publish official data on industrial production, a leading indicator of economic health.

The U.S. is to round up the week with the monthly report on non-farm payrolls, which is a leading indicator of job creation. The country is also to publish official data on the unemployment rate and average hourly earnings.