Forex - EUR/USD weekly outlook: July 25-29

Forexpros – The euro pared gains against the U.S. dollar on Friday, pulling back from a two-week high as the initial optimism which greeted the fresh aid package for Greece faded as investors began to focus on other risks in the euro zone.

EUR/USD hit 1.4437 on Friday, the pair’s highest since July 6; the pair subsequently consolidated at 1.4355 by close of trade, surging 1.70% over the week.

The pair was likely to find support at 1.4138, Thursday’s low and resistance at 1.4552, the high of July 5.

On Thursday, euro zone leaders announced a new aid package for Greece worth EUR159 billion, with bondholders agreeing to contribute to the bailout. They also expanded the role of the European Financial Stability Facility to purchase bonds from indebted nations, assist troubled banks and offer credit lines.

The euro pared gains on Friday as investors questioned whether the new aid deal for Greece was enough to stop the debt crisis from spreading to Italy and Spain and after ratings agency Fitch that Greece faced a “restricted default” under the terms of the new bailout plan.

Meanwhile, markets began to focus on efforts to raise the U.S. debt ceiling in order to avert a default.

Talks between U.S. President Barack Obama and Republicans broke down late Friday, after the Senate rejected a USD3 trillion deficit reduction plan, adding to fears over a potential default ahead of August 2 deadline to raise the country’s USD14.3 trillion debt ceiling.

Standard & Poor's said Thursday that there is a 50-50 chance that the triple-A credit rating of the U.S. could be cut within three months.

In the week ahead, as concerns over the sovereign debt crisis in the euro zone recede, investors will be focusing on U.S. efforts to agree on a deficit-reduction plan. Markets will also be looking towards Friday’s data on U.S. second quarter gross domestic product, in order to gauge the strength of the U.S. economic recovery.

Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on this day.

In the euro zone, market research group Gfk is to produce a report on German consumer climate.

Later in the day, the U.S. is to publish government data on new home sales, a leading indicator of economic health, as well as data on consumer confidence and house price inflation.

In the euro zone, Germany is to publish preliminary data on consumer price inflation.

The U.S. is to publish official data on durable goods orders, a leading indicator of production, as well as government data on crude oil stockpiles. Later in the day, the Federal Reserve is to publish its Beige Book, which contains data the bank looks at when making its next interest rate decision.

In the euro zone, Germany is to publish government data on employment change, an important indicator of economic health.

Later Thursday, the U.S. is to release government data on initial jobless claims, a leading indicator of economic health, as well as industry data on pending home sales.

The euro zone is to publish preliminary data on consumer price inflation, which accounts for a majority of overall inflation. Meanwhile, Germany is to publish 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 preliminary data on second quarter GDP, as well as a preliminary report on the GDP price index and an employment cost index. The U.S. is also to publish data on manufacturing activity in the Chicago area, while the University of Michigan is to publish revised data on consumer sentiment and inflation expectations.

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