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EUR/USD Consolidates as Markets await German Business Sentiment

H.S. Borji
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EUR/USD Consolidates as Markets await German Business Sentiment

The euro was little changed against its US counterpart Thursday amid a steady stream of economic data, as investors looked ahead to German business confidence signals amid growing geopolitical uncertainties.

The EURUSD was trading at 1.3467, climbing 0.03 percent, after trading within a narrow range of 1.3442-1.3485. The pair is trading well below its long-run average. Initial support is likely found at 1.3454. Initial resistance is found at 1.3475.

The euro has been trading near eight-month lows against the US dollar this week, as abating risk sentiment weakened the common currency, while widening interest rate differentials continued to favour the US over Europe.

Expectations the European Central Bank will ease monetary policy further has also weighed on speculators, as Eurozone inflation continues to trend at less than half of the central bank’s target.

However, currency analysts haven’t noticed an underlying trigger for the EUR/USD’s recent plunge, which probably means the latest sell-off was a technical one.

The EURUSD has declined more than 1.6 percent since July 1.

In economic data, the Eurozone economy expanded sharply this month, as manufacturing output and service activity climbed faster than forecast.

Markit Group’s composite gauge of economic activity advanced 1.2 percentage points to 54 in July, exceeding forecasts.

The gauge of service activity accelerated 1.6 percentage points to 54.4, and the index of manufacturing output rose 1.1 percentage points to 51.9.

A reading above 50 is a general sign of expansion in business activity, whereas a reading below that threshold signifies contraction.

“Business activity picked up again in July to suggest that the economy is growing at one of the strongest rates we have seen in the past three years,” said Markit chief economist Chris Williamson in a statement. “However, even with the resumption of stronger growth, the survey data suggest the region’s GDP is expanding at a modest pace of approximately 0.4% per quarter.”

The Eurozone economy expanded just 0.2 percent in the first quarter and at an annualized rate of 0.9 percent, the European Commission confirmed last month.

In US data, new home sales declined sharply in June, falling 8.1 percent to an annual rate of 406,000.

Markit Group’s gauge of US manufacturing activity declined from 57.3 to 56.3 as job growth fell to a ten-month low.

On Friday the Munich-based Ifo Institute will report on German business confidence for July. German business morale declined last month, reaching its lowest level this year, as geopolitical tensions in the Ukraine and Iraq weighed on sentiment.

The Ifo’s business climate gauge dropped from 110.4 to 109.7. The index is expected to weaken further this month after a Malaysia Airlines flight destined for Kuala Lumpur was shot down near the Russia-Ukraine border, killing all 298 people onboard.

The euro edged higher against the British pound, as the EURGBP advanced 0.35 percent to 0.7928. The pair is supported at 0.7878 and faces resistance at 0.7932.
In other data, British retail sales advanced slower than forecast in June, the Office for National Statistics reported today. Retail sales increased just 0.1 percent in June, following a decline of 0.5 percent the previous month.

Excluding fuel, retail sales tumbled 0.1 percent, following a 0.5 percent decline in May.

The euro gained traction against the yen, as the EURJPY advanced 0.31 percent to 1.3707. The pair faces initial support at 1.3641 and resistance at 1.3723.

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