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Forex pair EUR/USD was trading in the green once more as euro zone economic data unexpectedly rose and topped estimates, which in turn, brings the euro higher.

According to Friday’s preliminary data, economic activity in the euro zone had an unexpected surge to a seven-month peak in August even if there was an unforeseen decline in the manufacturing sector.

Private business activity in the euro zone was stable in August, supported by France’s strong and solid growth, despite staying on a rather muted level. Factories may potentially face a more difficult period on September as new order growth fell, a survey presented on Tuesday.

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The preliminary reading of the euro zone composite purchasing managers’ index rose to 53.3 this month from 53.2 in July. The PMI indicated GDP escalating 0.3% this quarter.

While Brexit remains as the reason outlook for the coming months is clouded, the impact of the vote seemed limited within the borders of Britain and not its main trading partner.

"August's slight rise in the euro zone Composite Purchasing Managers' Index suggests that, despite shrugging off the UK's Brexit vote, economic conditions remain fairly subdued," Stephen Brown at Capital Economics cited.

The French private sector merely ignored its European neighbor’s vote to leave the European Union and rocketed to higher levels last seen before the militant attacks in Paris last November. Growth in the service sector covered the manufacturing decline.

European stocks were broadly higher as they greeted the start of Tuesday’s trading session. Data were mixed, but it had pushed EURO STOXX 50 0.58% higher, France’s CAC 40 tack on 0.38%, and the German DAX 30 climb 0.43%.

Dollar, Fed Rate Hike Uncertainty

Meanwhile, dollar remains subdued in quite Monday trade as investors turned away from the Federal Reserve’s hawkish comments on talks of interest rate hikes and instead looked forward to Fed Chairwoman Janet Yellen’s speech set later in the week, Friday.

The US currency was lower against most of the major currencies today, including the yen and sterling.

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Over the weekend, the greenback was buoyed strongly when Vice Chairman Stanley Fischer stated the US central bank was nearing its employment and inflation targets, which sparked talks that a rate hike may come as soon as September.

“There's still a huge amount of skepticism as to whether the Fed really can hike, irrespective of the hawkish remarks we've heard from Fed bankers,” Rabobank currency strategist Jane Foley said. “What we do need at this juncture is just some direction, and we are likely to get that in the form of Jackson Hole.”

Yellen’s much-anticipated speech at the yearly meeting of world central bankers was expected to drop hints on the timing of a US interest rate hike. Fed Rate Monitor Tool, a gage by Investing.com, had revealed that investors are pricing in an 18% probability of a rate increase next month, higher from last week’s 12%. A December hike was chanced at an estimated 50%.

Analysis & Forecast

Small losses by the dollar, small gains by the euro as well.

As of 12:27 GMT, EUR/USD was trading higher 0.19% to 1.1342. The US Dollar Index gauged the greenback at a negative 0.19% to 94.34.

Markets are on the edge of their seats waiting for a possibly decisive speech by Fed Chairwoman Yellen—whether the chief shares the same view of Vice Chair Fisher, New York Fed Chief William Dudley and Atlanta Chief Dennis Lockhart, or she would stand on a more subdued choice in line with the July Fed meeting minutes that revealed the central bank policymakers were divided and was not rushing to hike rates.

The effects of the Fed anticipation, rate hike doubts and release of data are seen on the forex pair’s escalation on the chart below. The pair hit a session high of 1.13536 today.

 

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Since the Brexit vote, EUR/USD has remained in a level seemingly not climbable to pre-referendum levels. However, as we can see, recent surges are steadily making its way to month highs that could possibly bring it back to higher levels before Brexit.

After all, it doesn’t seem the expected negative repercussions of Brexit are affecting the currency; only worries and anticipation brought by the vote are.

US data and movements and financial numbers are even bigger factors that have moved the forex pair on its direction. Such as today, positive European data and doubts on US interest rate hikes have brought the dollar higher once more. Through last week, downbeat US data had made the forex pair jump higher.

Looking back from two years ago, EUR/USD had a huge, steady plunge due to the same fundamentals.

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May 08, 2014 marked the forex pair’s beginning of a long free-fall that even on two years, it never recovered to the same level. It was in this period that US data were continuously positive, which in turn made the dollar overshadow the euro. World events such as the civil war in Ukraine and European Central Bank anticipation afflicted the pair.

It’s steepest—a whopping 12- year low as made on March 13, 2015, when the dollar rose broadly even after a downbeat economic report, rising to fresh highs last seen on September 2003, and ECB’s quantitative easing program and Greece concerns weighed heavily on the euro zone’s currency.

The chart below indicates the forex pair bouncing within resistance and support levels valued at 1.14264 and 1.12450 respectively. The pair could go anywhere, but considering the fundamental factors, EUR/USD is expected to rise further if not to remain at a steady pace in the green. 

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