EUR/USD Attempting To Holds Its Ground, Finds Firm Bids Near 1.3160

Includes: FXA, FXC, FXE, UDN, UUP
by: FXstreet

The EUR/USD suffered more losses today, declining another 75 pips and closing at 1.3218. However, it should be noted the pair did trade as low as 1.3160 at one point, but was able to recover a decent portion of its losses before the end of the day. Analysts were discussing the release of the most recent EU PMI figures, which hit the tape during the previous European session.

Christian Magio, Senior Emerging Markets Strategist at TD Securities provided some details on the EU PMI release. "We saw the broad upside surprises for June eurozone PMIs that we were expecting today, though this failed to stem the selling of euro or retracement rally in bunds. France saw the biggest upside surprises (Manu up from 46.4 to 48.3 and Services up from 44.3 to 46.5, both 1-2 points better than expected) while the German composite PMI improved a point to 50.9, as well."

Furthermore, Magio went on to discuss the numbers out of Germany, "The more important German Manufacturing PMI declined, however, and the details of the German survey this month were weak. New orders fell again in June, with an even larger decline in services, while the export orders sub-index reached its weakest level of the year and cuts in employment were reported for a second month." In conclusion, Magio noted that although the data out of France was impressive, market participants should not overlook the less than stellar Manufacturing PMI data out Germany. :

Kathy Lien of BK Asset Management also discussed some of the details regarding the most recent EU PMI data, "Stronger eurozone PMI numbers failed to spare the euro from losses against the U.S. dollar. However compared to other currencies, the euro was surprisingly resilient. Improvements in the eurozone manufacturing and service sectors drove the PMI composite index up to 48.9 from 47.7. While the index remains in contractionary territory, this was the third consecutive month of improvement for the eurozone, a sign that the recovery is gaining momentum," Lien commented

In further discussing the data Lien also went on to add the weak data out of Germany is of concern, "The only wrinkle was the decline in manufacturing activity in Germany. This is concerning because the manufacturing sector is the foundation of the eurozone's largest economy and if manufacturing activity has slowed this suggests that exports may have suffered as well but some economists are attributing the decline to the temporary impact of recent floods. German producer prices also dropped -0.3% in May and lower inflationary pressures should keep monetary policy easy," Lien concluded

Lee Hardman, Currency Analyst at Bank of Tokyo Mitsubishi UFJ is of the opinion the rise in treasury yields is a major reason for the recent appreciation in the greenback over the past few days. "The U.S. dollar has strengthened significantly following the less dovish than expected FOMC meeting. The U.S. dollar is benefiting from a further rise in U.S. rates to fresh highs in 2013 with the 10-year U.S. Treasury bond yield rising to its highest level since mid-March of last year."

In further discussing the rise in yields, Hardman noted, " In less than two months the 10-year U.S. Treasury bond yield has risen sharply by around 76 basis points," In conclusion, Hardman added the sharp rise in U.S. rates is putting more pressure on higher yield currencies, particularly toes with current account deficits.

The technical set up of the EUR/USD continued to deteriorate today, although compared to the commodity currencies such as the AUD, CAD, and NZD, the relative performance was somewhat impressive. Although price remains below the 9 dma, price is still above the 20dma (1.3180) which will act as key pivot support going forward (note the low of the day was 1.3161). The RSI (14) is hovering near the 55 level, and needs to establish ground back above 60 in order to keep the oscillator within the bullish zone between 40 and 80. First resistance is now at 1.3260 (previous support, now resistance on 1 hour chart), while first support sits at 1.3216 (the 20dma on 1 hour chart). Given the sharp moves lower over the past few days, the pair may be due for consolidation as things quiet down near the end of the week.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.