Last week the EUR/USD and GBP/USD both moved in relatively tight ranges as investors tried to digest the reality of a severely deteriorating economic global recovery.  The week of August 8th saw a strong bout of risk aversion enter the market as the euro sold off sharply from its Hi's in the 1.3300 area and the pound sold off sharply from its Hi's in the 1.6000 area.

Last week, the euro and pound both essentially began to consolidate at the lows of that move since there was not much major news.  Traders are now trying to weigh the entire situation.  This week there is major news out for the United States that could seal the deal in the short-term and send the U.S. Dollar much higher versus other major currency pairs as concerns continue to increase.

On Friday, the euro and pound both attempted to break through key support levels to the downside. Those areas should now act as key support if price does take another shot at moving to the downside.

EURO

Note: Past performance is not indicative of future results.

Friday trading during the New York session saw traders commit below key support at 1.2732, and now price is continuing to use the 1.2732 area as resistance.  If 2732 holds to the upside, the euro could move much lower this week.  The next area of key support is not until the 1.2520 area, so the euro definitely has room to move from a technical perspective. 

If the euro does get strength to move back up above the 2732 area, it will most likely get sucked back into the trading range of last week between 1.2900 and 1.2732.  Price bounced around most of the week due to the lack of important news, but as we stated, this week there is plenty of important news out to get these currencies moving strongly.

Pound

Note: Past performance is not indicative of future results.

The pound moved in quite a tight period of consolidation last week as a lack of U.K. and U.S. news caused a bit of summer doldrums to take over as the market moved sideways.  Price made several attempts at the 1.5500 level last week before finally breaking to the downside Friday during the New York trading session.  It seemed as though the pound was in trouble on Friday morning as sellers came in with quite a bit of conviction and broke clean through the 1.5500 area, but the break turned out to be false as there was not enough selling conviction to get any sort of convincing close below the 1.5500 area.  Price moved back into the trading range, and as of early U.S. trading on Monday morning, the pound is back at 1.5550.  The 1.5500 area should now be viewed as major support to the downside.

Fundamental Developments

U.K.

The U.K. economy is facing a very difficult economic season.  Prime Minister Cameron was voted into office in large part due to his willingness to slash the U.K. deficit and bring its fiscal house into order.  In March of 2009, the U.K. was in danger of losing its AAA credit rating, and Mr. Cameron pounced on this issue and promised to bring the U.K. back into a responsible fiscal position.  He has carried through with his promises so far, but many critics are concerned that the fiscal tightening measures he is introducing into the U.K. economy could have a very negative impact on economic growth.  However, current economic data out of the U.K. has been surprising to the upside.  But even with good U.K. news, the pound is struggling to find much strength in the last few weeks.

The U.K. does not have much due for heavy news releases this week until Friday's Revised GDP.  Thus, the pound will most likely be subject to general developments in the U.K. economy, any surprising words from government officials, and U.S. Dollar and EuroZone news.  However, Friday's Revised GDP figure will be quite important.  GDP is expected to read at 1.1%.  Any surprise in either direction could cause quite a bit of movement in the pound.

Euro

The EuroZone has been able to weather the European Debt Crisis in incredible fashion.  The ECB is demanding austerity measures throughout the EuroZone, and although many economists feared that the austerity measures would weigh heavily on EuroZone growth, the truth is that they are not, yet.  The key is yet.  When growth does slow down, it is expected to slow significantly.  Jean-Claude Trichet had some hawkish remarks concerning the EuroZone economic recovery Monday morning, but it was not enough to get the euro moving much.  There is lots of hesitancy for the euro to move higher, especially since key support has been broken at the 1.2732 area.

This week the EuroZone does not have many major news releases.  It is set to release German IFO Business Climate on Wednesday, but that is it.  The focus this week will most likely be on further developments in Greece, Portugal, and Spain as those countries continue to face the struggles of economic recovery.  Late last week, Greece was in the headlines again as yield spreads are creeping much higher on Greek debt versus German bunds.  This increasing yield spread could cause major investor unrest if it continues.  If Greece continues to surface in the headlines this week, it could serve to deal the euro a major blow and we could see much further downside movement in this euro.

U.S. Dollar

This week is quite heavy week for U.S. economic data.  The housing industry has been showing disappointing signs of slow growth and Existing Home Sales and New Home Sales are due for release Tuesday and Wednesday, respectively.  This should give investors a clearer picture of the housing sector and what shape it is really in.  If the numbers disappoint to the downside, the overall negative investor sentiment that is currently in financial markets in general will most likely increase.

The biggest news announcement of the week will be the Revised GDP.  This number is going to be incredibly important.  Investors and economists want to know how bad the current economic slow-down really is, and this number should give a pretty clear picture.