The European Central Bank’s indication of additional stimulus program had EUR/USD linger close to its seven-month low on Monday’s trading session, even with the announcement of a robust manufacturing and service sector data report coming from the euro zone.

Research group Markit reported that its euro zone composite purchasing managers’ index (PMI), which gages the collective output of the manufacturing and service sectors, surged to a 10-month high of 53.7 in October, compared to the previous month’s reading of 52.6.

This number blew past analysts’ expectations of a 52.8 increase in October.


Earlier today, Markit said its German manufacturing PMI climbed to 55.1 in October from 54.3 September, topping forecasts for an unchanged reading. The German services PMI meanwhile tacked to 54.1 this month from 50.9, compared to projections for a gain to 51.5.

French manufacturing PMI was reported to have risen to 51.3 this month from 49.7 in September, beating expectations for a reading of 50.0. However, the French services PMI failed to top predictions, slipping to 52.1 this month from 53.3, compared to expectations for a 53.0 downtick.

Nevertheless, the overall earnings results were solid, but not completely offsetting the effect of the ECB’s decision to extend its stimulus program that weighed on the euro.

During the European morning trade, the EUR/USD touched an intraday high of 1.0893 during European morning trade. Consequently, the currency pair consolidated at 1.0886. As of writing, euro edged up 0.05% against the dollar to trade at 1.0887. EUR/USD was likely to find support at 1.0857, Friday’s lowest level and a seven-month trough and resistance at 1.0932, the high of the said day.

The chart below shows the steady decline after the first week of October, signaled by a doji candle marked on October 5[1]. The string of solid US data reports and increasing hawkish comments and expectations for the Federal Reserve to raise interest rates kept the dollar supported and stronger against its rivals for more than two weeks.

Bollinger bands are seen to constrict at this point after a short bearish breakout. [2]


Friday had the dollar on an eight-month high and the euro crashing to its seven-month low [3]. Sentiment on the euro was fragile after ECB President Mario Draghi stated that an extension to the bank’s stimulus measures could come in December and that its valuation would benefit from new economic projections to be drawn up by ECB forecasters.

Greenback remained broadly supported and hit its highest levels since early February after New York Fed President William Dudley cited that the US central bank will likely push for a rate hike this year if the economy remains on its current trajectory. Additionally, San Francisco Fed President John Williams described that "this year would be good" for an increase rate that he had wanted to take effect previously in September.

Fueled hopes that US Democratic Party nominee Hillary Clinton will win the US presidential election have also contributed to the view that a year-end rate hike is becoming more possible.

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