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EUR/USD rebounds after upbeat Eurozone data

H.S. Borji
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The euro rebounded against the US dollar Friday, consolidating well north of the 1.24 handle amid signs the Eurozone’s nascent recovery was gradually picking up the pace at the beginning of the fourth quarter.

The EURUSD climbed to an intraday high of 1.2476. It would subsequently consolidate at 1.2465, advancing 0.49 percent. The pair is testing the initial resistance of 1.2467. A break above this level could lead to a re-test of 1.25. On the down side, initial support is likely found at 1.2341.

The pair attempted to retake the 1.25 level Thursday, but fell short around 1.2491 in intraday trade. The euro has been trading below 1.25 US since the end of November, as the common currency faced renewed sell-off pressure.

Despite its recent woes, the euro has rebounded 1.4 percent against its US counterpart this week. The EURUSD had posted a more than two-year low last week, falling below the 1.23 handle as the markets digested latest comments from the European Central Bank.

In economic data, Eurozone industrial production rose 0.1 percent in October, the European Union’s statistics agency reported today. While slightly below forecasts, this translated into an annualized gain of 0.7 percent, above the median estimate of 0.6 percent.

In a separate report the statistics agency said Eurozone employment improved further in the third quarter. Overall employment increased 0.2 percent in the three months through September, following a 0.3 percent increase the previous quarter. Year-on-year, Eurozone employment increased 0.6 percent, official data showed.

Today’s figures are unlikely to translate into long-term support for the euro, which could face more crippling losses in the short-term as investors eye the Federal Reserve and keep tabs on additional ECB stimulus measures. The increasingly divergent nature of these central banks points to the widening gap between the US and Eurozone recoveries.

The US economy accelerated 3.9 percent annually in the third quarter, following a 4.6 percent surge in the second quarter. That marked the strongest six-month period of US growth in more than a decade.

The Eurozone, meanwhile, posted meagre growth in the third quarter after the 19-nation economy stagnated in the second quarter. Inflation remains a chronic issue and could fall to zero or even head into negative territory should the ECB not expand its monetary policy framework.

ECB President Mario Draghi announced last week the central bank would reassess its economic policies in the new-year to determine if additional stimulus is required. With inflation trending in the “danger zone” of less than 1 percent for more than a year, analysts are all but convinced policymakers will need to step in.

The ECB’s next meetings are scheduled for January 22. With interest rates near zero and the deposit rate already in the negative, the ECB is considering cheap bank loans and sovereign debt purchases to help revive the struggling Eurozone economy. Economists polled by Reuters earlier this week were near unanimous in their belief the ECB would in fact begin buying sovereign bonds in the next few months, perhaps as early as March.

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