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After steep declines for the first two weeks of May, the single currency managed to turn that trend around for a while. Last week the euro gained about 0.5% against the USD and finished at $1.2997 on Friday.

It looks like the notion that a Fed exit of its current monetary easing policy might be soon signaled officially continues to govern the trading in the EUR/USD currency pair. On the other hand, the analysts' expectations that the ECB will not cut its main refinancing rate later during the week continues to support the single currency. Hence, a surprising easing of the central bank's monetary policy could have a significant negative impact on the value of the euro.

The longer term technical picture remains rather uncertain. On a short term horizon, the euro is still in a positive territory according to the MACD indicator but not according to the longer moving averages (50 and 200). It continues to oscillate around the 23 Fibonacci level of the decline from January 2013 to March 2013 ($1.37 to $1.274). Another failure to break above its current previous high (around the $1.3050/70 area) might lead to a short- to near-term decline of the single currency.

A longer term decline of the euro would correspond to a tightening of Fed's monetary policy accompanied by a monetary easing on behalf of the ECB. All the variants in between, including a simultaneous tightening of both central banks' policies, would result in a continuation of the current uncertainty with a slight prevalence of the possibility for a stronger USD because the ECB is perceived to have more room to ease its policy than the FED has.

The Week Ahead

The most important risk events of the week are the European GDP (Wednesday), ECB rate decision and press conference (Thursday) and the U.S. nonfarm payrolls and unemployment rate (Friday). Those have the potential to present an increased volatility in the EUR/USD exchange rate and determine the near term direction of the pair.

This week's analysts' expectations are again close to the middle of the range after being a bit elevated for the previous week. About 52% of the expectations are for better-than-previous values, which is about 20% lower than the previous week's optimistic expectations. Consensuses continue to be more optimistic for the U.S. data (61%) than for the European one (42%), with the positive expectations for U.S. again growing faster than the ones for Europe. If these expectations happen to be true, the pressure on the FED to continue its current policy of easy money could become lower. This would support the USD against the euro.

The index shows the proportion the positive consensus estimates take 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 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, June 3

Event

GMT Time

EST Time

Consensus

Previous

EU Germany Markit Manufacturing PMI (May)

7:53

2:53am

49.0

48.1

EU Markit Manufacturing PMI

7:58

2:58am

47.8

47.8

USA Construction Spending (m-o-m) (Apr.)

14:00

9:00am

1.0%

-1.7%

USA ISM Manufacturing PMI

14:00

9:00am

50.5

50.7

The European data on Monday might provide support to the single currency. Negative surprises though, would put pressure on the euro. The U.S. construction spending, if it shows no negative surprise, would support the idea of a healthier U.S. economy. This generally would support the euro but such an effect could be negated by increased expectations that due to the stronger U.S. economy, a rather sooner than later end of FED's monetary easing might follow. The same is true for the ISM manufacturing index. A strong positive surprise here could increase the volatility in the EUR/USD pair in short term.

Update as of GMT11:30: Markit manufacturing PMI data came out better-than-expected for both Germany and the EU. This lifted the euro to about $1.3040 where the single currency faced a resistance and started to slide. As of time of writing it trades around the $1.2990/$1.30 level.

Tuesday, June 4

Event

GMT Time

EST Time

Consensus

Previous

EU Producer Price Index (Y-o-Y) (Apr.)

09:00

4:00am

0.3%

0.7%

USA Trade Balance (Apr.)

12:30

7:30am

$-41.0B

$-38.8B

USA IBD/TIPP Economic Optimism (M-o-M) (June)

14:00

9:00am

45.1

The European PPI, if released as expected, would mean a possible decline of inflationary pressure in the EU. This could support the expectations of an easier rate cut on behalf of the ECB which would be euro negative.

Logically, the stronger U.S. dollar is expected to result in a greater negative trade balance for the U.S. A positive surprise (a lower negative value) here would mean the U.S. exporters are more successful than expected in a stronger USD environment. Hence, they could be able to handle even a stronger dollar.

Wednesday, June 5

Event

GMT Time

EST Time

Consensus

Previous

EU Markit PMI Composite

7:58

2:58

47.7

46.9

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

09:00

4:00am

-1.0%

-0.9%

EU Retail Sales (Apr)

09:00

4:00am

-0.8%

-2.4%

USA ADP Employment Change

12:15

7:15am

170K

119K

USA Factory Orders (Apr)

14:00

9:00am

1.4%

-4.0%

USA Non-Manufacturing PMI

14:00

9:00am

53.5

53.1

The European data on Wednesday is interesting. The more current one is expected to support the notion of a healthier economy, while the GDP continues to slide. This could affect the ECB rate decision because even if the released GDP is lower than its previous value, the PMI and retail sales could show the economic agents are currently gaining speed. Thus, a rate cut could not be immediately needed which would have a positive effect on the euro.

All the expected U.S. data are for better-than-previous values. This could increase the expectations of a tightening of FED's monetary policy which would be U.S. dollar supportive.

Thursday, June 6

Event

GMT Time

EST Time

Consensus

Previous

EU Germany Factory Orders (Apr.)

10:00

5:00am

-0.2%

-0.4%

EU ECB Rate Decision

11:45

6:45am

0.5%

0.5%

EU ECB Monetary Policy / Press Conference

12:30

7:30am

USA Initial Jobless Claims

12:30

7:30am

345K

354K

Thursday carries the biggest event risk of the week. Because of the expectations of no change in the ECB rate policy, a surprising rate cut here could have a significant impact on the single currency's value. Even if the ECB leaves its main refinancing rate unchanged, as majority of the analysts expect, the press conference is expected to provide further details on the bank's current course of monetary policy. This could increase the volatility of the currency pair. Depending on the stance the central banks adopts, the near term direction of the euro against the USD could be affected.

Friday, June 7

Event

GMT Time

EST Time

Consensus

Previous

EU Germany Trade Balance (Apr.)

06:00

1:00am

€17.1B

€17.6B

EU Germany Industrial Production (Apr.)

10:00

5:00am

-0.8%

-2.5%

USA Nonfarm Payrolls

12:30

7:30am

168K

165K

USA Unemployment Rate

12:30

7:30am

7.5%

7.5%

The expected Germany data on Friday could support the single currency. Any negative surprises there would put pressure on the euro.

The consensus expectations for the U.S. data are for positive values. Any negative surprises on either the nonfarm payrolls or the unemployment rate, could drive the USD down due to the notion that this would postpone any monetary tightening on behalf of the FED.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: EUR/USD: The Week Ahead