Forex Market Review (European Session) – Euro gains on PMI, hits fresh 10½-month high Vs sterling; dollar hurt by Trump, data misses

Forex Market Review (European Session) – Euro gains on PMI, hits fresh 10½-month high Vs sterling; dollar hurt by Trump, data misses

During today’s European session, forex market participants pushed the euro higher on the overall positive picture given by the PMI figures released earlier in the day. In the meantime, the dollar index was down with the US currency being on a negative footing in today’s trading after some comments made by the US President yesterday in Phoenix. Data releases falling short of forecasts also weighed on the US currency.

Eurozone flash PMI figures for the month of August were released during morning European trading hours. The figure for manufacturing activity edged higher to 57.4 from July’s 56.6, outstripping forecasts for a reading of 56.3 and rising to its highest in six-and-a-half years. The services PMI though, was released at its lowest since January of the current year at 54.9, failing to beat expectations for a reading of 55.4 and coming in below July’s 55.4. Finally, the composite PMI, which blends the two (manufacturing and services PMIs) and which is considered a good proxy for overall growth, came in slightly above July’s 55.7 at 55.8 – analysts anticipated the measure to stand at 55.5. It is encouraging for the euro area that the manufacturing sector has not been negatively affected despite the strong euro rally thus far in 2017.

Eurozone’s common currency fell within the first few minutes of data release relative to the greenback after initially jumping higher. Shortly after though, it more than made up for the decline. It should also be noted that euro/dollar posted sizable gains earlier in the day upon the release of August flash manufacturing and services PMI data for Germany, eurozone’s (and Europe’s) largest economy – both readings positively surprised while coming in above July’s respective figures.

Later in the session, preliminary figures for the month of August showed eurozone consumer confidence rising to -1.5 from July’s -1.7. Expectations were for a fall to -1.8. The euro gained on the news relative to the US currency. Euro/dollar last traded above the 1.18 handle, 0.4% up on the day.

Moving to euro/pound, the pair acted similarly to euro/dollar upon the release of the data above. In addition, euro/pound today rose to a fresh 10½-month high of 0.9236 (this constitutes an eight-year high if one were to exclude sterling’s flash crash during October of last year). It is of notice that some analysts are warning that euro strength in recent months is overstretched.

In other news pertaining to the eurozone, European Central Bank President Mario Draghi appeared in Germany today. His comments were not market moving though, as he avoided to offer anything new in terms of monetary policy. On Friday, he’s scheduled to give a speech at the Jackson Hall symposium. Federal Reserve Chair Janet Yellen will also be speaking at the same event on Friday. Market participants do not expect either of them to make market-sensitive remarks.

Out of the US, the August flash manufacturing PMI was released at 52.5, below expectations and July’s 53.3. Dollar/yen didn’t react much to the news. New home sales for July released later in the day stood at 571k, their lowest in seven months. This negatively compares to projections for a reading of 612k. June’s respective figure was upwardly revised to 630k from 610k before, putting the month-on-month drop to stand at 9.4% – the largest since August of last year. The US currency declined versus the yen as the data went public, though not by much.

The dollar index, a broader gauge of the US currency’s strength, was last down 0.3% on the day, trading at 93.2. Meanwhile, dollar/yen was 0.4% down and close to 109 level. US President Donald Trump’s comments at a rally in Phoenix yesterday where he said he’d be willing to shut down the government in order to follow through his campaign pledge to build a wall alongside the US-Mexican border, acted as a drag for the currency during today’s trading.

Gold benefitted from dollar weakness to last trade 0.3% up on the day at $1,288.24 an ounce.

Finally, during afternoon European trading hours, the Energy Information Administration (EIA) released its weekly report on US crude inventories. The report showed stockpiles declining by 3.33 million barrels in the week ending August 18, less than the 3.45m that was expected and the 8.95 reduction reported the previous week. In contrast to yesterday’s report by the American Petroleum Institute (API), gasoline stocks fell more than expected. WTI experienced added volatility after the data release. It last traded 0.1% down at $47.77 a barrel. Brent was up by less than 0.1% at $51.90 per barrel. The oil-linked Canadian dollar was slightly down versus it’s US counterpart with dollar/loonie at 1.2566.

Source: Trade Forex with XM.

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