There will be a lack of confidence in the Euro-zone economy and structural fears will remain a major barrier to sustained gains. There will be further concerns that the US economy will deteriorate over the second half. There will also be speculation that the Federal Reserve will have to revive its asset-purchase plans and the dollar will rely on defensive support to make headway. A reduction in confidence surrounding the global growth outlook is likely an will lead to some defensive US support with the possibility of aggressive buying if liquidity fears intensify. Given the net Euro-zone and global economic risks, EUR/USD rallies are liable to stall close to the 1.24 area.

Banking-sector fears remained an important focus during Friday with fears that there would be a further deterioration in funding conditions which would tend to trigger further selling pressure on the Euro. There was a further widening of Greek default swaps during the European session before some improvement in confidence later in New York which also helped stabilise Euro sentiment.

The US economic data failed to have a significant impact during the session. The first-quarter GDP estimate was revised down to an annualised 2.7% from 3.0% previously as consumer spending estimates were also lower. In contrast, there was a small upward revision to the University of Michigan consumer confidence index which offered some degree of reassurance over spending trends.

G20 comments on the global economy will be watched closely over the weekend and any signs of division over policy or increased fears over the global economy would tend to have a negative impact on risk appetite.

There was, however, a tentative improvement in risk appetite in US trading on Friday as commodity prices also rallied. The Euro also found further technical support close to 1.2250 and there was a rally to highs near 1.2395 as there was a covering of short speculative Euro positions.