The EUR/USD pair ended a strongly bullish week, affected by the sudden intervention from the European Central Bank and the Federal Reserve in cooperation with other Central Banks, where the policy makers agreed to lower the cost of borrowing U.S. dollars in order to support European Banks that are facing dollar-liquidity issues and also to prevent a credit crunch from occurring in the European Financial system.
Optimism spread further in the market after European finance ministers agreed to hand Greece and Ireland the next tranches of the last bailout packages, which quelled jitters that Greece will not default early as expected before, where Greece will run out of funds probably in January without this financial aid.
Germany also supported the sentiment to improve this week, where the nation has finally agreed to boost the International Monetary Fund (IMF) role in fighting the two-year debt crisis, especially when the European Central Bank (ECB) mandate prevents it from involving directly in any bailouts for countries neither to act as a last resort.
The United Kingdom also shared the positivity with other nations, where the country explained that any changes in the European Union Treaty will be acceptable in case these changes can help in tackling the debt crisis, especially when the United Kingdom is affected sharply by the recessionary threats spreading from the euro zone, which is the United Kingdom’s largest trading partner.
In addition, the United States, the world’s largest economy, also added positivity to the market with the flow of upbeat fundamentals this week, where th U.S. unemployment for example retreated to 8.6% from 9.0% this month, while manufacturing sector improved to 52.7 from the previous 50.8, in the time consumer confidence improved to 56.0 from 40.9.
The volatility will continue for the pair this week with the eyes focused still on the euro area, especially with the lack of major data from the United States.
This week the ECB is expected to cut rate for the second time in as many months by 25 bp back to the record low of 1.0% and Draghi is likely to announce further support to the market and the economy by longer maturity tenders and credit lines to ease the strain from the debt crisis.
The second most important entry on our agenda this week will be the EU summit to the end of the week. The leaders will discuss the treaty change as Germany and France push for tighter fiscal consolidation and coordination to ensure the strength of the union while also they will finalize the details of the EFSF with the possibility of discussing the IMF as the source for funding and likely shy from direct remarks on the ECB role to ensure its independence.
They might call for cooperated efforts to expand the IMF firepower via bilateral lines and SDR from regional central banks after Germany reflected its eased objection to the matter and that will be surely the needed highlight for the week and for the coming period as Europe exhausted all its chances and we hope they seize this one and not only show us they did and to end up as only buying more time like the last summit!
Other news from the euro area and the U.S. economy to affect the pair this week:
Monday December 5:
Germany will start this week at 08:55 GMT with the PMI Services for November in a final reading, where the index is expected unrevised at 51.4.
The euro zone will join the session at 09:00 GMT with the PMI Composite and Service for November in a final reading, where the PMI Composite and Services are expected unrevised at 47.2 and 47.8 respectively.
At 10:00 GMT the euro zone will release the Retail Sales index for October, with expectations the monthly index could have expanded by 0.1% from the previous drop of 0.7%, while the annual index is projected to drop by 0.6% compared with the prior drop of 1.5%.
At 15:00 GMT the United States will join the session with the ISM Non-Manufacturing Composite for November, which could have improved to 53.5 from 52.9.
The United States will also provide markets with the Factory Orders index for December, with expectations that the index could have shrank 0.3% from the prior 0.3% expansion.
Tuesday December 6:
The euro zone will start the session at 10:00 GMT with the GDP figures for the third quarter in a preliminary reading, where the quarterly and annual seasonally adjusted indexes could have lingered at 0.2% and 1.4% respectively, noting that the Household Consumption index previous reading was 0.2% drop, while the Gross Fixed Capital was at 0.2%, in the time Government Expenditures dropped by 0.2% previously.
Germany will join the session at 11:00 GMT with the Factory Orders index for October, where the annual non-seasonally adjusted index could have expanded by 1.8% compared with the previous expansion of 2.4%, while the monthly seasonally adjusted index is predicted to expand by 1.0% from the previous drop of 4.3%.
Wednesday December 7:
Germany will start the session at 11:00 GMT with the Industrial Production index for October, where the non-seasonally adjusted annual index is projected to expand by 3.2% from 5.4%, while the seasonally adjusted monthly index could have expanded by 0.3% from the previous drop of 2.7%.
The United States will join the session at 20:00 GMT with the Consumer Credit figure for October, which could have declined to $7.000 billion from $7.386 billion.
Thursday December 8:
The European Central Bank will start the session with the Interest Rates Decision for December, with expectation the Governing Council could have lowered the key rate to 1.00% from 1.25%.
The United State swill join the session at 13:30 GMT with the Initial Jobless Claims (DEC 2), noting that the previous figure was 402 thousand claims.
At 15:00 GMT the United States will provide markets with the Wholesale Inventories for October, which could have expanded by 0.4% from the prior drop of 0.1%.
Friday December 9:
Germany will start the session at 07:00 GMT with the Trade Balance figures for October, where the Trade surplus is expected to narrow to 15.0 Billion euros compared with the previous of 17.4 billions, as Exports are expected to drop by 1.0% from the previous 0.9% expansion, while Imports are expected to expand by 0.1% from the prior 0.8% drop.
The German Current Account could have narrowed to 14.0 billion euros from 15.7 billion.
Germany will also released the consumer price index for November in a final reading, where the annual and monthly CPI indexes are expected unrevised at 2.4% and 0.0% respectively, while the Harmonised CPI annual and monthly indexes are expected to remain unchanged at 2.8% and 0.0% respectively.
The United States will join the session at 13:30 GMT with the Trade Balance figures for October, which could have narrowed slightly to $13.0 billion from $13.1 billions.
At 14:55 GMT the United States will end the week with the University of Michigan Confidence figure for December in a preliminary reading, where the confidence is expected higher at 65.5 compared with the prior of 64.1.
**European Leaders Summit**