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EUR/USD Tests New Lows

H.S. Borji
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EUR/USD Tests New Lows

The euro fell to fresh lows against the US dollar on Tuesday, as economic data continued to bolster the greenback amid a quiet release schedule in the Eurozone.

The EURUSD tumbled for the second consecutive day, declining 0.33 percent to 1.3317. That marked a new 2014 low. The pair fell below three intraday classic supports and is now trading nearly 300 pips below its 100-day simple moving average. Initial resistance is ascending from 1.3401.

The EURUSD is trading at its lowest level since September 2013, when the pair tumbled to 1.3118. Year-to-date, the euro has declined 3.2 percent against the US dollar.

The common currency strengthened against the British pound on Tuesday after UK inflation fell more than expected. UK consumer prices advanced at an annual rate of 1.6 percent in July, down from 1.9 percent the previous month, further diminishing the chances of a 2014 rate hike.

The EURGBP advanced 0.34 percent to 0.8015, easing off an intraday high of 0.8028.

The euro was little changed against the Japanese yen, as the EURJPY traded at 137.03.

All was quiet on the Eurozone release front. In a minor release, the European Central Bank said the Eurozone current account surplus narrowed in June to a seasonally adjusted €13.1 billion from €19.8 billion. The monthly indicator, which captures the net flow of current transactions into and out of the Eurozone, is not a major market mover.

On Wednesday Germany’s Federal Statistics Office will report on producer inflation. German producer prices are forecast to increase 0.1 percent in July.
The European Commission’s statistics branch will also report on construction output on Wednesday.

Later in the week industry data will make headlines, as Markit Group gets set to release its monthly purchasing managers’ index covering services and manufacturing output. The Eurozone composite index, which tracks both service and manufacturing activity, is forecast to decline to 51.4 from 51.8.

US data were once again the driving force in the currency markets. Upbeat economic data coincided with a healthier risk appetite in the global markets following weekend talks between European foreign ministers regarding Ukraine.

In economic data, the US housing sector leapt forward in July, as housing starts and building permits surged. Housing Starts rose 15.7 percent last month, while building permits advanced 8.1 percent.

Meanwhile, annual consumer inflation weakened to its lowest level in five months, but was steady at 2 percent.

The US dollar is expected to retain its strength for the remainder of the year, as deepening US recovery paves the way for tighter monetary policy. The US dollar bulls were eager to drive the markets much sooner, but a disastrous first quarter stalled the greenback’s long-predicted climb.

Meanwhile, the euro will continue to face strong headwinds in the coming months, as the Eurozone economy stagnates and the threat of deflation continues to materialize. Complicating matters is a growing sanctions war between Russia and the West, which is expected to impact Germany, the Eurozone’s star economy.

Germany’s gross domestic product declined 0.2 percent in the second quarter, after expanding 0.7 percent in the first three months of the year. That was the first time Europe’s largest economy contracted since 2013.

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