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Euro Gains Traction Following Weak US Data

David Becker
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Euro Gains Traction Following Weak US Data

The Euro gains some traction on Monday as focus on the currency markets turned to this week’s FOMC meeting and economic data which will be anchored by the jobs report. It is unlikely there will be any major surprises in the FOMC policy stance or in the forward guidance. There should be a $10 billion reduction in QE which is pretty much baked in the cake.

Speculators have increased EUR net short positions in the latest CFTC data released after the close on Friday. For the week ended July 22, EUR net shorts rose to 88.8k contracts from 62.8k in the prior week. This is far from the largest short position on record but could be sufficient to create a short squeeze if the payroll report is much weaker than expected.

On Monday, U.S. pending home sales index dropped 1.1% to 102.7 in June after rising 6.0% to 103.8 in May. Compared to last June, the sales index is down 4.5% year over year versus -6.9% year over year. The annual sales pace has contracted since October, though the rate has been slowing since April.

U.S. Markit services PMI held at 61.0 for the preliminary July print, maintaining the record high set in June after rising from May’s 58.1. The index has been above 55.0 for the last 9 months after rebounding from October’s 49.3. Service providers noted a rise in payroll numbers too, extending the general uptrend for nearly the past 4-1/2 years. However, the composite July reading slipped to 60.9, just off the record high 61.0 in June. Input prices for the combined manufacturing and service sectors was the slowest since March, according to Markit.

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The Euro turned higher and did not make a lower low. Momentum is still negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The RSI has also turned higher and is now just above oversold territory printing at 30.88.

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