EUR/USD hit 1.3165 on Friday, the pair’s lowest since December 21; the pair subsequently consolidated at 1.3214 by close of trade, up 0.4% for the week.
The pair is likely to find support at 1.3165, Friday’s low and resistance at 1.3283, Thursday’s high.
Trading volumes were thin as many investors already closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.
The euro came under pressure after Italy saw borrowing costs edge higher at an auction of five- and- ten-year government bonds, amid uncertainty ahead of national elections in February.
Rome sold EUR3 billion of 10-year bonds at an average yield of 4.48%, up from 4.45% last month. The country also auctioned EUR2.87 billion of five-year debt at a yield of 3.26%, compared to 3.23% a month earlier.
Adding to jitters, revised data showed that France’s economy grew by a meager 0.1% in the third quarter, down from an initial estimate for growth of 0.2%.
The euro zone’s second largest economy shrank 0.1% in the second quarter, unchanged from the previous estimate.
Meanwhile, market players remained focused on developments surrounding the fiscal cliff in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1 unless Democrats and Republicans agree how to cut the deficit.
U.S. President Barack Obama met with congressional leaders at the White House Friday afternoon, but both sides failed to reach an agreement ahead of the looming year-end deadline.
The gathering included House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.
The House of Representatives is due to return to Washington on Sunday. The Senate will be in Sunday as well to try to reach a last-ditch agreement.
Without a deal, the U.S. could fall back into recession and drag much of the world down with it.
On the data front, the National Association of Realtors said Friday that U.S. pending home sales rose 1.7% in November, above expectations for a 1% increase.
A separate report showed that Chicago's purchasing managers' index rose to 51.6 in December, from a reading of 50.4 the previous month, beating expectations for a rise to 51.0.
In the week ahead trading volumes are expected to remain light, with many markets closed for the New Year’s holiday.
Meanwhile, U.S. is to publish its closely-watched monthly jobs report on Friday, as investors attempt to gauge the strength of the country’s economic recovery.
Monday, December 31
Markets in Germany will remain closed for New Year’s Eve.
Tuesday, January 1
Markets in the U.S. and in Europe will remain closed in observance of New Year’s Day.
Wednesday, January 2
In the euro zone, Spain and Italy are to release official data on manufacturing activity, a leading indicator of economic health. In addition, Germany is to produce preliminary data on consumer price inflation.
Later in the day, the Institute of Supply Management is to produce a report on manufacturing growth in the U.S., a leading indicator of economic health.
Thursday, January 3
Official data is to be produced on German unemployment change. Separately, Spain is to publish a similar report.
Later Thursday, the U.S. is to release a report on ADP nonfarm payrolls, as well as its weekly government report on initial jobless claims. In addition, the Federal Reserve is to publish the minutes of its most recent policy-setting meeting.
Friday, January 4
The euro zone is to publish preliminary data on consumer price inflation, which accounts for the majority of overall inflation, as well as data on service sector activity.
In addition, Germany is to produce government data on retail sales, a leading indicator of economic health, while Italy and Spain will also release data on service sector growth.
The U.S. is to round up the week with official data on nonfarm payrolls, the foremost gauge of job creation, as well as data on the overall unemployment rate.
The country is also to release official data on factory orders, crude oil stockpiles and natural gas inventories. In addition, the ISM is to produce a report on service sector activity.