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The Euro Shows Strength Despite Recent Weak Data; Momentum is Strong

David Becker
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EUR/USD is higher, trading at the top end of its current range despite disappointing data out of Germany, with the June Ifo index dropping to 109.4 from 110.4. The euro lifted to the 1.3625 area after opening in London near 1.3600. The currency pair seems to have become less sensitive to headline risk as the Euro also gained traction on Monday despite sub-expectations Eurozone PMI figures, dovish ECB-speak, and forecasting-beating U.S. existing home sales.

The German June Ifo index came in much weaker than expected, with the headline reading falling to 109.7 from 110.4 in May. This was the third consecutive month of decline. The current conditions indicator was steady at 114.8, but the expectations index dropped sharply to 104. from 106.2, which suggests a slowdown in activity ahead, even if readings remain at relatively high levels.

The diffusion index, which gives the balance of positive and negative answers, fell to 11.8 from 13.2 in the previous month, entirely due to a sharp drop in manufacturing confidence. Construction meanwhile turned slightly less negative and confidence in wholesale and retail trade improved in June. Confidence fell to an average of 110.4 in Q2 from 110.9 in the first quarter of the year, which squares with expectations for a slowdown in growth in the second quarter, after what always looked like an exaggerated very strong Q1. The German recovery remains on track, but the pace has slowed down somewhat.

The Euro is gaining traction and momentum is moving higher. The MACD late last week generated a buy signal as the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. Support on the currency pair is seen near the 10-day moving average at 1.3575, while resistance is seen near the resent highs at 1.3650.

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