Outlook for EUR/USD during the upcoming week

The euro erased daily losses against the US dollar on Friday to register a third weekly advance, after data revealed that the number of existing homes sold in the US fell to an 18-month low in January, which added to concerns that the severe weather conditions may have slowed the growth of the US economy.

Having fallen to a session low of 1.3702 at 08:15 GMT, EUR/USD erased daily losses to close at 1.3739 on Friday, adding 0.15% for the day. The pair also registered a 0.35% weekly advance, capping a third consecutive 5-day period of gains. Support was likely to be found at February 20th low, 1.3686, while resistance was to be encountered at February 20th high, 1.3763.

Greenbacks demand was pressured after it became clear that the number of existing homes sold in the US dropped considerably last month, which implied that the US housing market was still experiencing the adverse influence of both high mortgage rates and adverse weather conditions. According to data by the National Association of Realtor’s (NAR), existing home sales in the country decreased 5.1% in January compared to a month ago to reach the annualized 4.62 million units. The indicator recorded a fifth drop in the past six months, while at the same time home sales reached their lowest level in 18 months.

Experts had anticipated that existing home sales will fall less, to 4.68 million units in January, following 4.87 million homes sold in December. Analysts suggested that the combination of weaker supply and stronger demand in nation’s housing sector led to a jump in home values.

On Thursday, the Bureau of Labor Statistics in the United States said in a report that the index of consumer prices rose 0.1% in January compared to a month ago, in line with analysts’ estimates and after the index gained 0.2% in December. The annualized consumer price inflation came in at 1.6% last month, matching the median experts’ forecast and following a 1.5% increase in December.

Core consumer prices, which exclude the volatile food and fuel categories, also advanced 0.1% in January compared to the preceding month, while the annualized core consumer price inflation reached 1.6% in January.

Additionally, the number of initial jobless claims in the country fell by 3 000 to 336 000 during the week ended on February 15th, while preliminary estimates pointed a decrease to 335 000 claims.

On Wednesday the minutes of Federal Reserve Bank’s policy meeting on January 28th-29th showed several policy makers said that in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to pare back the central bank’s monthly monetary stimulus by 10 billion USD at each meeting.

As the rate of unemployment decreases at a faster than expected pace, even while other labor-market indicators signal weakness, bank’s policy makers agreed that it would “soon be appropriate” to revise their guidance about the time horizon of record-low borrowing costs.

Meanwhile, euro’s demand continued to be pressured after a series of overall downbeat reports added to signs the recovery in the common-currency area remains fragile and may even slow its pace in February.

The market research group, Markit Economics, reported on Thursday that its gauge of manufacturing activity in the euro area unexpectedly slipped to 53.0 this month, from 54.0 in January. Experts had projected the index to remain steady at 54.0. In addition, a separate report by the same market research group revealed that its services measure rose to 51.7 this month from 51.6 in January. However, analysts had estimated that the index will rise to 51.9. The composite index of Markit Economics also registered a decline to 52.7 in February from 52.9 a month ago.

In Germany, which is the largest economy in the euro zone, the manufacturing index declined to 54.7 this month, from 56.5 in January, while experts predicted a smaller decline to 56.3. However, the services index rose to 55.4 this month from 53.1 in January, outstripping analysts’ expectations for an increase to 53.4. The composite German index of Markit Economics also increased, reaching a 2-1/2-year high in February.

French manufacturing and services gauges also disappointed, with the latter dropping to the lowest level in nine months.

Although the economy of the 18-nation common currency area is forecast to post a full-year growth this year, for the first time in three years, the economic recovery seems fragile, as unemployment remains at “an unacceptably high levels” and the price pressure remains weak.

The unemployment rate in the euro area remained unchanged at 12% in December, after November’s reading has been revised down to 12.0% from 12.1% previously. The unemployment rate eased a bit from September’s high of 12.1%.

Inflation in the euro area sharply declined to an annualized pace of 0.7% in January, the weakest level in four years and after a 0.8% increase in the previous month. Analysts had estimated that consumer prices will increase by 0.9% in January. This was a fourth straight reading of inflation under 1%, which was referred to by ECB President Mario Draghi as a danger zone, adding to concerns over the threat of deflation in the region. The central bank attempts to maintain inflation at just below 2%.

Mario Draghi tries to guide the euro zone through fragile economic recovery as inflation remains at the lowest since 2009. For now, interventions are postponed at least March, when the central bank is going to publish its quarterly macro-economic forecasts, which will provide first inflation predictions for 2016. Previous forecasts have revealed that the ECB should take more decisive steps and should further ease its monetary policy.

During the week ahead investors’ attention will be focused on the US durable goods orders and revised Gross Domestic Product reports.

EUR/USD may be influenced by a number of reports and/or events scheduled during the next week as follows:

On Monday (February 24th), the euro zone will report on its harmonized consumer price inflation, while the largest economy in the currency bloc, Germany will publish its Ifo business climate index for February.

On Tuesday (February 25th) the Conference Board research group is to announce the results of its survey on consumer confidence for the United States in February. A separate report by S&P and Case-Shiller will show the annualized home prices in 20 large US cities during December.

In the euro zone, Germany will report on its Gross Domestic Product in the fourth quarter, which analysts forecats to remain unchanged from the previous quarter.

On Wednesday (February 26th), the United States will report on new home sales in January.

On Thursday (February 27th), the US is expected to release the weekly report on initial jobless claims, an indicator for lay-offs in the country, accompanied by the closely watched report on durable goods orders in January, a key indicator for production activity.

The euro area is scheduled to release data on its M3 money supply for January, while Germany is expected to report the change in the number of unemployed people, accompanied by the nations unemployment rate.

On Friday (February 28th), the euro zone will release its flash harmonized index of consumer prices, accompanied by the jobless rate in the 18-nation common currency area, which is projected to remain steady at 12%.

Meanwhile, at 13:30 GMT the United States will announce the revised annualized value of its Gross Domestic Product during the final quarter of 2013, which is the widest indicator for activity of economic subjects in the country.

At 14:45 GMT the US will release the results of the business survey in February, which encompasses entities operating in the region of Chicago.

At 14:55 GMT the University of Michigan in cooperation with Thomson Reuters will announce the final reading of their index of consumer confidence also in February.

At 15:00 GMT the National Association of Realtor’s (NAR) will publish data regarding pending home sales in January, an indicator for future housing sector activity in the United States.