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Dollar Weakens as Sentiment Improves

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Dollar Weakens as Sentiment Improves

The Euro rebounded slightly on Thursday as investors began to consider that the House Republicans and the Administration could come up with a resolution to the current government shutdown and the debt ceiling. The dollar weakened, despite US interest rates backing up with yields moving higher in the 10-year space. Economic data in the Euro zone was weaker than expected which created minor headwinds for the Euro.

In the euro area, both French and Italian industrial production figures disappointed. Italian industrial output fell 0.3% rather than increase 0.6% as analysts had expected. Energy output was a significant drag, on output in both countries. The data warns that GDP contracted in Q3.

French output edge higher by 0.2% in August. After the 0.6% decline in July, the consensus had expected to larger recovery of 0.6%. Manufacturing was the weakest link. It increased approximately half of what was expected and the 0.3% increase follows a revised 0.8% decline in July.

Early in the trading session the Euro rebounded from short term support levels near the recent lows at 1.3480. Short term resistance is seen near the 10-day moving average at 1.3560. Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index generating a sell signal. 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 index moved from positive to negative territory confirming the sell signal. The trajectory of the MACD is negative which foreshadows negative price action.

The relative strength index (RSI) edged higher with price action and is printing near 58 which is on the upper end of the neutral range.

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