EURUSD continued its uptrend last week which began on Monday with a series of 10 cooperation agreements struck between China and Germany worth approximately $4.4 billion. The agreements, which included a €124 M green fund, and an M.O.U. on the establishment of Chinese-European eco-parks, were for building a "comprehensive strategy partnership." On Tuesday, EURUSD made its weekly low of 1.2522 as German ZEW Economic Sentiment came out at 21.2 versus an expected 25.2 and Eurozone ZEW Economic Sentiment, also lower than expected at 10.7 versus 16.8 expected. Also on Tuesday, the Eurozone Trade Balance came out with a deficit of -42.3B versus a -39.3B consensus.

The rate then rallied sharply through Wednesday as the Euro benefited considerably from the results of successful bond auctions in Spain and France. France was able to raise €8.39B in short-term paper maturing in 2012, 2013 and 2015, while Spain raised €3.0B in 15-year notes. The rally took a breather however; as Spain's Central bank revealed that in June the ECB had borrowed record amounts from Spanish banks. Other economic releases on Wednesday included Eurozone CPI and Eurozone Core CPI which came out at 1.4% and 0.9% respectively, as was widely expected. In addition, U.S. Retail Sales came out showing a decline of -0.5% month on month, versus a decline of -0.2% expected, while U.S. Core Retail Sales declined 0.1%, as was widely expected.

EURUSD continued sharply higher after the U.S. Fed's FOMC released its minutes for its June meeting Wednesday afternoon. The minutes admitted that the United States would most likely not see a convergence toward a sustainable economic recovery for quite some time, with the minutes' addendum noting that participants now "expected the convergence process to take no more than five to six years." Also affecting the U.S. Dollar adversely was the U.S. Philadelphia Fed Manufacturing Index which came out at a dismal 5.1 on Thursday considerably lower than the consensus of 10.2.

The rate continued rallying despite a Moody's downgrade to Portugal's sovereign bond ratings to A1 from Aa2. Moody's expectations for Portugal's troubled debt are that problems will continue to persist for the next two to three years. Regardless of Moody's rating downgrade, Greece was able to successfully auction €1.62B worth of six month T-bills at a 4.65% interest rate which was lower than the 5% cost of the European Union's bailout package. The offer was oversubscribed by a factor of 3. On Friday, EURUSD made its weekly high at the 1.3007 level which had not been seen in two months. The rate seemed resilient despite the Eurozone Trade Balance which showed a deficit of -3.0B which was considerably worse than the expected surplus of 0.8B. Also on Friday, the University of Michigan Consumer Sentiment indicator printed at 66.5, a one-year low, versus a consensus of 74.2. In addition, U.S. Core CPI increased by 0.2% month on month versus 0.1% expected. EURUSD then sold off on profit taking to close the week at 1.2926, up 2.2%.

Fundamental Outlook for EURUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in the Eurozone and the United States are as follows:

Eurozone:

The coming week of economic data scheduled in the Eurozone is less active than last, and features the important German Ifo Business Climate survey on Friday.

Monday starts the week out with the EZ Current Account (-3.0B), while Tuesday has German PPI (0.2% m/m).

Wednesday has nothing of note, but Thursday offers French Flash Manufacturing PMI (54.1), French Flash Services PMI (60.0), German Flash Manufacturing PMI (58.0), German Flash Services PMI (54.6), EZ Flash Manufacturing PMI (55.2), EZ Flash Services PMI (55.0), Industrial New Orders (-0.1% m/m) and EZ Consumer Confidence (-17).

Friday ends the week with the highlighted German Ifo Business Climate survey (101.5), as well as French Consumer Spending (0.3% m/m), Italian Retail Sales (0.2% m/m) and Belgium NBB Business Climate (-7.9).

United States:

This week's economic release calendar for the United States calms down considerably versus last week, but still offers some interesting policymaker speeches, as well as important data for forex traders on the U.S. housing market. In terms of economic data, the calendar features Tuesday's Building Permits and Thursday's Existing Home Sales releases.

The week commences on Monday with a speech by FOMC Member Duke scheduled in Virginia, as well as the release of the NAHB Housing Market Index (16).

Tuesday has the highlighted Building Permits (0.57M) data, as well as Housing Starts (0.58M) and testimony by FOMC Member Tarullo on Financial Regulation before the Senate Banking Committee scheduled in Washington, D.C.

Wednesday offers important testimony by Federal Reserve Chairman Ben Bernanke on the semi-annual monetary policy report before the Senate Banking Committee, in Washington, D.C.

Thursday is especially active with Initial Jobless Claims (453K), the highlighted Existing Home Sales (5.15M) data, the CB Leading Index (-0.3% m/m), the HPI (-0.3% m/m), plus more testimony by Fed Chairman Bernanke on the monetary policy report, this time before the House Financial Services Committee, in Washington, D.C.

Thursday ends the week since Friday has nothing notable due out.

The Technical Picture for EURUSD

On the technical front, EURUSD traded higher overall last week to make a fresh recent peak at 1.3007 within the second leg of its corrective upward move off of the key 1.1876 low seen on June 7^th. The sharp up move in the rate dominated the week's price action which saw the rate close 2.2% higher at 1.2926.

The rate also briefly penetrated above its upper Bollinger Band which currently has a value of 1.2963. An upward slanting trend line can also be drawn above the price action that is now at 1.3014 and rising. Also, the rate has closed above the 50% retracement level of the move from the 1.3817 March 17th high down to the 1.1876 June 7th low at the 1.2847 level. A sustained break of this level would suggest that the next objective for the rate would be at the key 61.8% retracement level at 1.3076 which could offer significant resistance.

In addition, a potential bottoming pattern resembling an inverted head and shoulders pattern may also be forming on the daily charts. Although more complex than usual, this pattern has its low point at 1.1876 and a now-broken neckline that can be drawn at 1.2671. Together, these would imply a 1.3466 measured move target for EURUSD.

Nevertheless, although EURUSD managed to make a new high on its key 14-day RSI indicator in overbought territory when the rate initially traded up to 1.2954 last Thursday, the subsequent Friday high of 1.3007 that was seen only showed a RSI reading just under overbought territory at 69. Accordingly, the slight divergence showing up on the indicator, its current high level, and the fact that it is at the top of its recent upwards channel argues strongly for either correctively lower levels or a period of consolidation for EURUSD over the coming week.

Also, the medium term outlook for EURUSD remains bearish, with the rate continuing to trade well below the key 200-day Moving Average indicator's current level of 1.3687.

Support for EUR/USD shows at 1.2889, 1.2777 and 1.2682. Resistance to the topside is seen at 1.2954, 1.3007 and 1.3093.

Overall, this technical scenario makes selling EURUSD ahead of the 61.8% retracement level of 1.3076 seem attractive from either a short or medium term perspective.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of EURUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.