German PMI sees strong recovery

Dr. Vasileios Gkionakis at UniCredit Bank reflects on the news that has sent the euro higher saying:

"Markit released its preliminary PMI figures for July for the Eurozone. For the first time since July 2011, the manufacturing index jumped above the break-even level of 50 (at 50.1), indicating expansion in the manufacturing sector.

"The sub-components registered noticeable improvement as well with the New Orders component rising to 50.4 from 49.3 and the Employment index jumping to 49.1 from 47.8."

UniCredit view today's report as further suggestion that the recovery in growth momentum is well entrenched at the beginning of 3Q13

Sean Lee at FXWW says focus has been moreso on the good German PMI figures which rose to 52.8 in July, its highest in five months, from 50.4 in June.

Lee sees a cascading of upward pressure right through the euro crosses:

"EUR/JPY has taken out resistance near 132.10/20 and has its eyes of recent highs near 134.00. EUR/AUD of course had its earlier surge and even EUR/CHF has joined in to a lesser degree. If half-decent German PMI cause this reaction, what will happen when some really good news breaks!"

EUR-GBP to receive boost on back of EUR-USD rally

The Euro / US dollar exchange rate is often an important underlying driver of the smaller Euro / Pound exchange rate and today's PMI data is key for direction in EUR/USD.

"We have frequently used the relative Euro zone PMI / US ISM as a measure to gauge the direction of the EUR-USD movements; since December 2010, the correlation between this index and the currency pair has been at 0.82, indicating a tight relationship between the two series," says Gkionakis.

Today's strong data outcome is tipped to drive EUR/USD higher, Gkionakis says:

"We think that this will provide further support to the EUR-USD in the short-to-medium term. So far, EUR-USD has reacted little to the positive news, rising from 1.3213 to 1.3255, and is now trading closer to 1.3232.

"We think this reaction is too low compared to the size of the surprise in the PMI figures."

Euro rally consolidates ahead of US housing data

Indeed, as Gkionakis mentions, the euro appears to have run out of steam.

One reason for this is that traders are not looking to overextend themselves ahead of today's next major data event - this time out of the United States.

Boris Schlossberg at BK Asset Management says:

"The EUR/USD popped on the news running through the barriers at 1.3250 but has since stalled near 1.3240 as its awaits North American flow.

"In US today, the market will see the release of the flash PMI data and the New Home Sales report. Housing data has been disappointing, but the market anticipates a slight uptick in New Homes to 482K fom 476K the month prior. If the data meets or beats, USD/JPY could extend its recovery and push towards 100.50 as the day progresses."