EZ PMI data beats expectations
The euro (Currency:EUR) is currently in an uptrend against the US dollar, and this is feeding Euro strength against a number of other key pairings.
UPDATE: EZ PMI beat expectations. Eurozone July Advanced PMI manufacturing at 50.1 v 49.1 expected; services at 49.6 v 48.7. No discernible impact on the euro - it has merely solidified the gains witnessed in the run up to the release.
Can the EURO Breakout be Sustained?
"EUR-USD may benefit from stronger EMU PMIs, but firmer US housing data could still prevent a rally much above 1.34242. We favour staying long on the EMU data and taking profit before the US figures," say UniCredit Bank in a morning client briefing.
Kathy Lien at BK Asset Management says, "the euro rose to its highest level against the U.S. dollar this month ahead of Wednesday's key economic releases. In order for the breakout in EUR/USD to be sustained, Eurozone PMI reports need to show stronger activity in both the service and manufacturing sectors."
Lien also wants to see better conditions in Germany because weakness in the region's largest economy would raise concerns about whether the recovery in periphery nations is sustainable.
US dollar struggles to find a bottom
The other side of the euro dollar exchange rate story is, of course, the US dollar which has been struggling to find any meaningful support.
On Tuesday morning, it looked like the post-Bernanke correction of the dollar was petering out. However, fresh selling pressure on the dollar was realised after the Richmond Fed manufacturing survey proved to be much weaker than expected.
Today, the US calendar remains thin with only the mortgage application and the New home sales scheduled for release, this follows on from Monday when the dollar lost intraday some ground on weaker than expected existing home sales.
"We don’t expect a figure below consensus. Question is whether this should be enough to put a floor for the US currency. In this respect, we also keep an eye at the bond market. Of late, the correction of the dollar went hand in hand with the rebound on core bond markets. If this correction would halt, this could also give the dollar some downside protection. If so, USD/JPY should be a frontrunner in this process," says Piet Lammens at KBC Markets.
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