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During the last week, the euro declined with about 1%. On Wednesday, it made an unsuccessful attempt to break its previous high around $1.32. The single currency finished the week below $1.30, at $1.298, after reaching as low as $1.2935 on Friday.

The decline on Friday was intensified to some extent by the signals that came from the meeting of G7 in London that day. According to Bloomberg, the German Finance Minister Schaeuble signaled that Germany may support easing of the European austerity measures because the governments now "have earned enough room to maneuver".

Technically speaking, the uncertainty continues to prevail as there is no clear confirmation of a trend. On the daily graph, the euro trades below its 50 and 200 MAs, and they also show a slightly negative formation. On the weekly graph there is a clear bearish divergence seen in the last year between the price of the euro in USD and the MACD indicator, which in general means a decline could follow.

Regarding a more short-term horizon, the smaller time frame graphs suggest we might first witness a euro recovery (or correction of the decline) to $1.3020/40 or even $1.3070/80 areas, but we expect it to be a short-lived one. The uncertain, or more negative than positive, picture on the daily and weekly graphs however, might determine the trend in the near-term.

The Week Ahead

The most important risk events of the week are the U.S.A. retail sales (Monday), Germany CPI, HICP and economic sentiment (Tuesday), the preliminary data on Germany and EU GDP (Q1) (Wednesday), EU and U.S.A. CPI data (Thursday). Those have the potential to present an increased volatility in the EUR/USD exchange rate.

This week's analysts expectations continue the optimistic mood from the previous week. Almost 55% of the expectations are for better-than-previous values, which is about 15% more than the previous week's optimistic expectations. Consensuses are again more optimistic for the U.S. data (63%) than for the European one (44%) but while optimistic expectations for the U.S. mark no growth, the analysts expect about 16% more better-than-previous data to be released from Europe. This generally would favor the euro as the currency whose economy receives more positive expectations. On the other hand however, this also increases the danger of negative surprises.

The current value of our Consensus Optimism Index (COI) is 55, up from about 48 for the previous week, and is close to the middle of the range. Hence, the probability of negative of positive surprises does not seem to be significantly elevated.

The index shows the proportion the positive consensus estimates taking in all the estimates we have available for the respective week. A value above 50% represents an optimistic mood in the expectations rather than pessimistic. The weekly change in the index's value could be used as a tool to assess the analysts' mood. It should not be neglected however that the EUR/USD rate actually moves rather on the real data and on how that data differs from the expected one.

Investors could take advantage of their own expectations about the EUR/USD exchange rate movement in order to hedge the positions they have in other assets. For instance, American investors with investments in euro-denominated assets who expect that the U.S. dollar would appreciate against the single currency, could try to decrease the currency risk by selling euros or by opening a short position in an ETF which tracks the price of the euro. CurrencyShares Euro Trust (NYSEARCA:FXE) is among the most widespread options here. It tracks only the price of the euro measured in U.S. dollars. This ETF has an expense ratio of 0.40%.

For those who prefer more diversified funds, among the options are the PowerShares DB USD Bullish ETF (NYSEARCA:UUP) and the PowerShares DB USD Bearish ETF (NYSEARCA:UDN). Both funds are U.S. dollar denominated and track the value of the USD against six other major currencies - euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The funds' expense ratio is 0.50%.

Monday, May 13

Event

GMT Time

EST Time

Consensus

Previous

EU Eurogroup Meeting

U.S.A. Retail Sales (M-o-M) (April)

12:30

7:30am

-0.2%

-0.4%

U.S.A. Business Inventories (March)

14:00

9:00am

0.2%

0.1%

The U.S. retail sales on Monday are expected to show a slowing decline. This, in a combination with increased business inventories, would benefit the single currency as it might increase the risk-on mood of the markets. Any negative surprises here however, would weigh on the euro.

Tuesday, May 14

Event

GMT Time

EST Time

Consensus

Previous

EU Germany CPI (April)

06:00

1:00am

1.2%

1.4%

EU Germany HICP (April)

06:00

1:00am

1.1%

1.8%

EU Industrial Production (March)

09:00

4:00am

-2.2%

-3.1%

EU Germany ZEW Economic Sentiment (May)

09:00

4:00am

38.3

36.3

U.S.A. NFIB Business Optimism (April)

11:30

6:30am

89.8

89.5

The inflation data on Tuesday is important because it would hint at least the direction of the inflation data for Europe, expected to be released on Thursday. The expected decline, if it happens, would give more freedom to the ECB to lower its interest rate and pursue a more accommodative monetary policy. This will weigh on the single currency. On the other hand, a surprisingly higher inflation here or on a European level would benefit the euro because the expectations for a further easing of the monetary policy would be constrained.

Analysts' expectations for the other economic indicators on Tuesday are also positive. If they are proven right, this would benefit the single currency because of an increase in the risk-on sentiment.

Wednesday, May 15

Event

GMT Time

EST Time

Consensus

Previous

EU Germany GDP (Q-o-Q) (Q1) p.

06:00

1:00am

0.3%

-0.6%

EU Germany GDP (Y-o-Y) (Q1) p.

06:00

1:00am

0.2%

0.4%

EU GDP (Y-o-Y) (Q1) p.

09:00

4:00am

-0.9%

-0.9%

U.S.A. MBA Mortgage Applications

11:00

6:00am

1.8%

U.S.A. PPI (Y-o-Y) (April)

12:30

7:30am

0.1%

1.1%

U.S.A. Industrial Production (M-o-M) (April)

13:15

8:15am

0.1%

0.4%

Analysts expect that both Germany and EU GDP will show positive quarterly developments. Generally, this would benefit the euro. Hence, negative surprises here would support the USD.

The support for the USD might become less intensive if the analysts expectations for the U.S. data are proven right. The lower PPI would mean there is a smaller imminent inflation threat in the U.S., especially when combined with a lower industrial production. This would suggest no coming ending of the Fed's easy monetary policy will be expected.

Thursday, May 16

Event

GMT Time

EST Time

Consensus

Previous

EU CPI (April)

09:00

4:00am

1.2%

1.2%

EU CPI Core (April)

09:00

4:00am

1.0%

1.5%

U.S.A. CPI (April)

12:30

7:30am

1.4%

1.5%

U.S.A. CPI Ex. Food & Energy (April)

12:30

7:30am

1.8%

1.9%

U.S.A. Housing Starts (April)

12:30

7:30am

0.985M

1.036M

U.S.A. Initial Jobless Claims

12:30

7:30am

335K

324K

Comparing the CPI expectations for Europe and the U.S., we see that higher inflation is expected in the U.S. This might suggest the ECB has more room for a further easing of its monetary policy than the Fed, which, if it happens, would benefit the USD in the EUR/USD pair because of its relative strength.

The consensuses on the housing starts and jobless claims suggest worsening data, so this would generally be USD supportive as this is the risk-off currency in the pair.

Friday, May 17

Event

GMT Time

EST Time

Consensus

Previous

U.S.A. Reuters/Michigan Consumer Sentiment Index p.

13:55

8:55am

77.6

76.4

U.S.A. CB Leading Indicator (April)

15:00

10:00am

0.1%

-0.1%

The analysts' expectations on both of the above indicators suggest a more healthy U.S. economy. This would increase the risk-on sentiment and be euro supportive. Consequently, any negative surprises here would weigh on the single currency.

Source: EUR/USD: The Week Ahead

Additional disclosure: I am short-term long euro.