The Euro’s volatile behavior seems to be a direct result of the mixed news coming out of the Euro-Zone’s leading economies. On the one hand, German Factory Orders dropped by 2.1% in October, and the French Trade Balance failed to reach expectations for a -2.3B result, instead coming in at -4.4B. On the other hand, the German Trade Balance rose to a 12.9B surplus in October. In addition, the German Final Consumer Price Index dropped by 0.1% in November, much better than expected. According to both of these indicators, the German economy is recovering nicely.

As for the week ahead, many interesting publications are expected from the Euro-Zone. The most significant publication appears to be the German ZEW Economic Sentiment survey on Tuesday. Traders should follow this survey, as a better than expected end result could correct some of the Euro’s losses against the Dollar from the past two weeks.

The currency posted little reaction to Thursday’s decision by the Bank of England to leave its key lending rate unchanged at a record low 0.5%. The Bank of England also maintained its asset-buying program at 200 billion pounds ($326 billion), in line with the economists’ forecasts.

While positive economic data continues to come from Germany, Euro-Zone’s largest economy concerns about sovereign ratings in the Euro-Zone’s smaller countries and the potential for choppy economic growth seem to be putting downward pressure on the EUR at the moment, possibly pushing it even lower against the USD.

Traders may want to pay attention to any news coming out of the ECB. Positive economic data could signal that Europe is recovering faster then America and Japan, and could lead to further gains for the EUR. At the same time, if the U.S. unemployment figures come in as expected, the Euro could lose ground on the dollar. A stable U.S. jobs market will likely lead to gains for the Dollar and could result in a repeat of this past week’s EUR losses.

Against the Yen, the EUR made gains after a strong Australian jobs report brought back investors to risk taking. It would appear that the positive news from Australia has halted the gains the Yen had made in the last few days. With the European production figures set to be released today, the Euro could emerge even stronger in afternoon trading.

The British pound declined to its weakest level in almost 2 months versus the Dollar on concern that Dubai’s state-controlled companies will have to sell U.K. assets to pay for loan obligations. There are also concerns that companies in Dubai, which are falling behind on debt payments, may need to sell U.K. property, according to economists. Sterling fell roughly half a percent to the day’s low of $1.6376 as the market awaited the UK government’s pre-budget report on Wednesday, which is expected to highlight the dismal state of the Britain’s finances.

Analysts said that since most investors are worried that more European countries’ sovereign ratings will be downgraded the U.S dollar will probably be bought and the EUR will likely be sold, as risk aversion prevails.

Today traders will focus on the state of the U.K. economy as major economic data is set to be released. First to be released at 9:00am GMT will be the Halifax Housing Price Index (HPI). The leading indicator of the housing industry’s health shows the change in housing prices and can influence the movement of the Pound. The rate is expected to decline by 4%. Up next will be manufacturing production numbers, set to be released at 9:30am GMT. The number is associated with the previous month and is a large percentage of total industrial production. The release is considered to be a good indicator of England’s overall economic health.

These two major economic indicators may set the tone for today’s trading in the Pound’s crosses. Bullish numbers could send the pound higher against its rivals. Toward s the end of the trading day, we may see the GBP/USD trading near the 1.6535 mark and the EUR/GBP floating close to 0.8990.

It seems that there are two main reasons for the Euro’s downfall last week. The first was the European Central Bank’s (ECB) decision to leave the Euro-Zone’s Interest Rates at 1.00%. The decision has left investors confused about whether the Euro-Zone economies are truly on the verge of putting the crisis behind them, or is it still to soon to tell. The second was the sharp uptrend of the Dollar, which took place due to the U.S Non-Farm Employment Change’s unexpected positive figures. The combination of the uncertain outlook of the Euro-Zone and the upbeat data from the U.S have boosted the Dollar and weakened the Euro as a result.

As for the week ahead, a lot of potentially deep impacting economic publications are expected from the Euro-Zone. The German Industrial Production report for October is expected on Tuesday. The German economy is providing relatively positive data lately, and if this report will continue along this line it is likely to support the Euro. Traders should also follow the ECB President Trichet’s speech today, scheduled for 13:00 GMT. If Trichet decides to refer to the possibility that the ECB will hike rates in the near future it could strengthen the Euro back towards last week’s levels.

The ECB kept its main interest rate unchanged at 1% a record low, but still higher than the Federal Reserve’s or the Bank of England’s rates. Higher interest rates can support a currency as investors move funds to where they earn the best returns.

European Central Bank President Jean-Claude Trichet said Thursday the economy of the 16 countries that use the EUR will grow at a moderate pace next year, but the recovery will be “uneven and subject to risks.” He confirmed widespread speculation that the ECB will start winding down its extraordinary measures, which include cheap loans to banks that were used to provide the financial system with extra liquidity during the financial crisis.

The Euro did not fair as well against the other high risk currencies, and suffered losses against the Aussie in early morning trading. The AUD hit an 8-day high against the Euro, trading above 1.6200 earlier today. The British Pound also made gains against the Euro in trading on Wednesday falling to a session low of 90.36 pence. If ECB decides to keep interest rates low, traders can expect the Euro to continue a downward trend against the other high risk currencies.

The British pound advanced against the U.S dollar and the EUR as house prices rose for a 7th month and Dubai World began talks with banks, easing concern a delay in debt payments will hurt U.K. lenders. The U.K. currency rose to $1.6621 from $1.6440 yesterday. The Sterling strengthened to 90.86 pence per EUR, from 91.25 pence.

The GBP climbed even as an index compiled by the Chartered Institute of Purchasing and Supply and Market Economics showed U.K. manufacturing expanded last month less than economists predicted. Morgan Stanley said that U.K is likely to limp out of recession, certainly relative to its global peers.

This week investors will be weighing in on key economic data from Europe and the U.S, including today’s release of Euro-Zone Manufacturing data and Friday’s U.S. Non-Farm Payrolls. The European Central Bank will announce Thursday whether it will raise its key interest rates. While The ECB is not expected to change rates, investors will be paying attention to any comments regarding the timing and exit strategy of the current monetary policy.