EURUSD began the week on a positive note despite negative news on several fronts, including the E.U. and the IMF suspending talks with Hungary which was urged to cut its budget deficit before being allowed additional access to bailout funds. Also, Moody's downgraded its debt rating for Ireland to Aa2 from Aa1. In terms of economic releases, Monday saw the Eurozone Current Account showing a deficit of -5.8B, considerably higher than the -3.0B consensus. The rate continued rising on Tuesday making its weekly high of 1.3028 as German PPI increased by 0.6% month on month, considerably better than the 0.2% expected increase.

Adding to the Euro's strength was a disappointing U.S. Housing Starts number which came out at its lowest level since October of 2009. Nevertheless, EURUSD started sliding after failing to hold the 1.3000 level and in reaction to disappointing results from an auction of Hungarian three month bills. The pair continued tanking on Wednesday making its weekly low of 1.2732 as disappointing results from yet another bond auction, this time in Portugal weighed on the
Euro.

On Thursday, EURUSD firmed on the back of multiple economic reports from the Eurozone which included, German Flash Manufacturing PMI which came out at 61.2, considerably better than the 58.0 reading expected, and German Flash Services PMI with a reading of 61.3 versus 60.0 expected, while Eurozone Flash Manufacturing PMI came out at 56.5 versus 55.2 expected and Eurozone Flash Services PMI at 56.0 versus 55.0 expected. Also, Eurozone Consumer Confidence rose to -14 from -17, and negative employment and home sales numbers from the U.S. contributed to the rate's Thursday rise.

The pair continued strong on Friday with German Ifo Business Climate printing at 106.2 considerably better than the expected 101.5. Nevertheless, the rally lost steam as the results of the stress tests on 91 European banks conducted by the Committee of European Banking Supervisors were released. The CEBS found only seven banks did not meet the requirements, collectively being €3.5B short. The banks which failed the test were five in Spain, one in Greece and one in Germany. Some market observers were expecting a failure rate of up to 20% which led some to believe that the stress tests may not have been sufficiently rigorous. EURUSD went on to close the week at 1.2914, down 0.1%.

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 Eurozone Employment Report due out on Friday.

Monday starts the week out on a quiet note with nothing significant scheduled for release in the Eurozone. Tuesday has GfK German Consumer Climate (3.6), German Import Prices (0.4% m/m), M3 Money Supply (-0.1% y/y) and Private Loans (0.3% y/y).

Wednesday offers German Preliminary CPI (0.3% m/m), while Thursday has the German Unemployment Change (-17K).

Friday ends the week with some important data, including the highlighted Eurozone Unemployment Rate (10.0%), as well as German Retail Sales (0.0% m/m), CPI Flash Estimate (1.8% y/y), Italian Preliminary CPI (0.2% m/m) and the Italian Monthly Unemployment Rate (8.8%).

United States:

This week's economic release calendar for the United States is moderately active like the previous week, and will offer some interesting data for forex traders on the U.S. economy. The upcoming U.S. economic calendar features Friday's key Advance GDP data.

The week commences on Monday with just New Home Sales (317K) due out. That is followed on Tuesday with the S&P/CS Composite-20 HPI (3.8% y/y), as well as the important CB Consumer Confidence index (51.5) and the Richmond Manufacturing Index (20).

Wednesday offers Core Durable Goods Orders (0.6% m/m), plus Durable Goods Orders (0.9% m/m) and the closely watched Fed Beige Book.

Thursday only has Initial Jobless Claims (456K) out in terms of notable releases, and Friday closes the week with plenty of action.

Releases on Friday include the highlighted Advance GDP number (2.5% q/q), plus the related Advance GDP Price Index (1.1% q/q) and the Employment Cost Index (0.5% q/q). Also out on Friday are the Chicago PMI (56.1), the Revised University of Michigan Consumer Sentiment survey (67.5) and University of Michigan Inflation Expectations (last 2.9%).

The Technical Picture for EURUSD

On the technical front, EURUSD traded correctively lower last week, but only after making a new recent high at 1.3028 on Tuesday. The rate eventually bottomed out at 1.2732 on Wednesday before bouncing as high as 1.2965 on Friday. The rate traded sideways overall for the week and now appears to be forming a symmetrical triangle on the short term charts. EURUSD eventually closed the week at 1.2914, down just -0.1% from the previous week's close.

The rate also corrected back below its upper Bollinger Band which currently has a value of 1.3114 and is rising. An upward slanting trend line can also be drawn above the price action that is now at 1.3159 and rising. Also, the rate has again closed the week 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. Although the rate dipped back below this level last week, the subsequent close above it suggests that the next objective for the rate would be at the key 61.8% retracement level at 1.3076. This level could offer significant resistance, with a break targeting the 100% retracement level at 1.3817 thereafter.

In addition, a potential bottoming pattern resembling an inverted head and shoulders pattern with a low point at 1.1876 and a now-broken neckline that can be drawn at 1.2671. This would imply a 1.3466 measured move target for EURUSD provided that 1.2671 holds.

Furthermore, the slight divergence seen on the 14-day RSI for the previous week's high was also seen for last week's new high, most likely leading to the downwards correction seen last week that has now brought the key indicator back into upper neutral territory at 63. Since the 14-day RSI is also now in the central part of its upward channel, the rate may well see further consolidation of recent gains this week as the RSI moves closer to the center of the neutral zone within the possible forming triangle pattern.

Also, the medium term outlook for EURUSD remains bearish, with the rate continuing to trade below its key 200-day Moving Average indicator's current level of 1.3638. Despite recent upside price action, the indicator remains convincingly downward sloping.

Support for EURUSD shows at 1.2793, in the 1.2682/1.2732 region, and at 1.2522. Resistance to the topside is seen at 1.2965, 1.3007 and 1.3093.

Overall, this technical scenario makes a triangle trading strategy seem attractive this week to take advantage of a possible consolidation period in the near term. This would involve selling EURUSD on rallies to near the triangle's upper line and buying it on dips close to the lower line.

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.