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Why is the EUR/USD (FXE) heading higher?

The EUR/USD pair has been trading in tight channels over the last 48 hours. After diving to new monthly lows on Monday at 1.3970, the pair sprung up in an apparent recovery.  The price movement was a surprise after Monday’s poor data:

French Flash Manufacturing PMI: 55 actual v. 57 expected (higher is better)

German Flash Manufacturing PMI PMI: 58.2 actual v. 61.2 expected

Flash Manufacturing PMI: 54.8 actual v. 57.6 expected

Flash Services PMI: 55.4 actual v. 56.6 expected

The “Flash” data is a prelude to the “Final” version which is released one week later. Above 50.0 indicates industry expansion, below indicates contraction. The data is a leading indicator of economic activity and is constructed from a survey of about 600 purchasing managers.

Other important data released on Tuesday had little effect on the pair. The German Ifo Business Climate was better than expected 114.2 v. 113.9 (don’t forget the data from Monday though) and New Home Sales (NYSEARCA:USD) were better than expected 323K v. 305K. Lately housing data has had a larger effect on the dollar, so it is interesting that the currency pair barely moved on this.

The reason this is important is that the currency pair rallied on poor data in a downtrend. This can imply that investors were covering long positions momentarily. The USD did not release any strong or weak data to manipulate the pair into moving. The chart belows shows the channel trading in the EUR/USD from this week.

eurusd, euro, usd, currency, dollar, trading, hedgefundlive, daytradewell, fundamental, technical, fxe

Channel trade broken

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Author contact: eric.kelly@hedgefundlive.com