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Weak Manufacturing Data Sends Euro to Fresh 8-month Lows

David Becker
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Weak Manufacturing Data Sends Euro to Fresh 8-month Lows

EURUSD extended losses on Wednesday to a fresh the eight-month low to 1.3333. The next level of target support on the current pair is 1.3295, which coincides with the November 2013 lows. The RSI turned lower reflecting accelerating negative momentum. Weak data of the Eurozone in the form of a sharp dip in German manufacturing orders and unexpected news that Italy returned to recession contrasts recent U.S. releases.

German refinancing costs fall in 5-year auction. Germany sold 2.491 billion euro of additional 5-year Bobls with a coupon of 0.50% at an average yield of 0.28%, down from 0.33% at the previous auction on July 2. Bids for the EUR 3 billion on offer amounted to EUR 3.923% and with the Bundesbank holding back EUR 0.509 billion for market smoothing purposes the official bid to cover ratio was 1.6, down from 2.0 in July. A renewed rise in risk aversion has boosted demand for German bonds aided the decline in borrowing costs to a record low.

German manufacturing orders plunged 3.2% month over month in June, after already falling 1.6% month over month in the previous month. Expectations had been for a partial rebound from the drop in May, and the renewed contraction is worrying, especially as it meant the annual rate also fell into negative territory, for the first time since May last year. Orders dropped 2.4% year over year, after still rising 7.7% year over year in May.

The breakdown showed that both domestic and foreign orders declined, but that the biggest impact had a 10.4% month over month decline in orders from other Eurozone countries, while foreign orders from outside the Eurozone stabilized, after a sharp decline in May. The weaker than expected June number left orders down 0.6% q/q in Q2, a clear deterioration from the already weak 0.1% q/q in Q1 and not a good sign for manufacturing activity and overall growth in the third quarter of the year.

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