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Solid PMI Helps Euro Gain Traction

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Solid PMI Helps Euro Gain Traction

On the heels of Friday’s stronger than expected PMI data released in the US and China, the Euro zone released manufacturing data that was slightly better than expected. The EURUSD currency pair was on the heels of collapsing below support levels, as the yield differential moved in favor of the greenback, generating negative momentum for the Euro.

Euro-zone factory activity came in slightly higher than expected in October thanks to modest strength in Germany. According to Markit the PMI monthly gauge rose to 51.3 in October from 51.1 in September. The figures are a helpful guide to the ECB which is scheduled to meet this Thursday to determine if there is a need to alter interest rates.

The ECB has had a difficult year but after addressing the Cypriot banking crisis the economy settled down and asset prices were able to rise steadily. The central bank in Europe states that it would consider a cut the deposit rate below zero. No major central bank has done this yet.

Market participants expect the ECB to provide another LTRO to help stimulate the European economy. It became clear that in stress testing banks, those that rely on ECB funds should be penalized in some fashion, which has diminished the attractiveness of the policy. This means that while the ECB may offer another LTRO, it may not meet widespread demand.

The EURUSD held support near 1.3460. A close below this level could lead to a quick test of support near 1.32. Resistance on the currency pair is seen near the 10-day moving average near 1.37. Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index generating a sell signal last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The RSI is print near 41, which is on the lower end of the neutral range.

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