Euro Rally Pauses, But Dollar Still Can’t Find a Bid

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Market Drivers July 24, 2017
Aussie recovers
EZ PMI mixed
Nikkei -0.74% Dax -0.33%
Oil $45/bbl
Gold $1254/oz.

Europe and Asia:
EUR EZ Compoiste 55.8 vs. 56.2

North America:
USD Existing Homes 10:00

Euro came under pressure on the first trading day of the week after EZ flash PMI readings printed weaker than expected across the board.

With the exception of French Manufacturing PMI all the flash readings missed their mark with composite PMI for the region coming in at 55.8 versus 56.2. This is still comfortably above the 50 boom/bust level and shows that the expansion in the region remains on pace, but the rate of growth has clearly slowed.

According to Markit, “The headline IHS Markit Eurozone PMI fell for a second successive month in July, down from 56.3 in June to a six-month low of 55.8, according to the preliminary ‘flash’ estimate (based on approximately 85% of final replies). Despite coming off recent highs, the index remained at an elevated level by historical standards and signaled one of the strongest expansions seen over the past six years. The upturn was once again broad-based by sector. Manufacturers − buoyed in particular by further robust export order book growth − continued to report stronger output growth than service providers, despite the rate of expansion easing to the weakest since January. The growth of new orders, backlogs of work and employment all edged lower in July but remained solid. While new orders and backlogs were found to have been rising at rates only modestly below recent six-year peaks, the rate of job creation continued to run at one of the highest seen over the past decade. Factories led the job market upturn, reporting the second-highest employment gain on record.”

Overall, the data today is unlikely to have any negative consequences on Eurozone monetary policy as authorities clearly appear to be moving to normalization and will likely taper QE before the end of the year. The today simply provided some short term profit taking, but the EURUSD remains well supported with 1.1600 figure still holding. The pair, however, is grossly overbought so may see more profit taking as the week proceeds.

In North America today, the focus will be on housing as the market looks to the Existing Homes data which will be released at 1400 GMT. The forecast is for -0.8% decline. However, housing has been a bright spot in the US economy lately and any upside surprise could help the dollar ahead of the FOMC later this week. For now, however, the greenback remains on the back foot with USDJPY continuing its slide this morning as the pair flirts with the 110.50 level. Still, it is coming in to key technical support levels and is likely to hold ground unless US data disappoints and the Fed turns markedly dovish in its message this week.

Boris Schlossberg
Managing Director

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