EUR/USD reaches fresh one-month highs as German consumer confidence improves

The euro advanced to highs unseen in one month against the US dollar on Wednesday, drawing support by a Gfk survey on consumer confidence in Germany and as policymakers in Euro zones largest economy reached an accord to form a coalition government.

EUR/USD climbed to a new daily high at 1.3613 at 9:40 GMT, also the pairs highest point since October 31st, after which consolidation followed at 1.3610, rising 0.27% for the day. Support was likely to be received at November 26th low, 1.3521, while resistance was to be encountered at October 31st high, 1.3738.

Germanys Chancellor Angela Merkel managed to reach a coalition agreement with the Social Democratic Party, which calls for a national minimum wage and pledges to raise spending on pensions and infrastructure, without increasing taxes. The accord has been struck earlier today after 17 hours of negotiations, as it sets Angela Merkel on track for her third term as nations Chancellor until 2017. The agreement still has to be passed by the entire Social Democratic Party, which plans a referendum among its almost 470 000 members, Bloomberg imparted.

“The euro was boosted by the news that Germany is close to reaching a coalition accord,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo, cited by the same media. “I don’t think the euro will extend gains much from here.”

In addition, the Gfk research group announced the results of its survey on consumer confidence in Germany for December, which encompasses 2 500 respondents being asked about their assessment of the current economic conditions in the country and their personal financial prospects. The index, based on survey results, advanced to a reading of 7.4 in December, marking its highest level since August 2007, from a revised up value of 7.1 in November. Preliminary estimates pointed that the index will reach 7.1 in December. These results have been supported by a steadily recovering labor market in the country and increasing income expectations.

Despite that the overall index reflects confidence during the upcoming month, the comprising components provide clues on situation during the current month. Consumers expectations regarding personal income rose to their highest level since March 2001, with the corresponding index advancing by 12.5 points to reach a reading of 45.2 in November. Consumers willingness to make larger purchases also increased to the highest levels in seven years, while economic expectations rose to their highest since July 2011. Data suggested that German retailers will probably have a promising holiday season.

At the same time, another survey showed that consumer confidence in France diminished in November, with the index, based on survey results, dropped to a value of 84 from 85 in October. This value still remained below the historic average of 100. Consumers concerns about employment increased during the current month, while their assessment regarding the ability to spend more remained without change.

Meanwhile, yesterday it became clear that consumer confidence in the United States unexpectedly decreased in November. The index, gauging confidence among consumers, dropped to a reading of 70.4 in November from the revised up value of 72.4 a month ago. Experts had anticipated that the index will reach 72.1 in November. According to a report by the Conference Board research group, US consumers expressed concerns over employment in the future and also over their income prospects. The sub-index of economic expectations decreased to a reading of 69.3 in November from 72.2 in October, while the gauge of current assessment retreated to 72.0 in the current month from 72.6 in the preceding month.

This report came after S&P and Case/Shiller said that their index, tracking prices of homes in 20 large US cities, advanced 13.29% in September 2013 compared to September 2012, exceeding preliminary estimates of a 12.97% gain.

Last but not least, the number of building permits in the United States was reported to have increased considerably in October, reaching its highest level in more than five years, which suggested that construction activity in the country was expanding during the third quarter of the year. The number of permits rose 6.2% in October compared to September to reach 1.034 million units, after another 5.2% climb to 0.974 million units in the preceding month. Experts had anticipated that the number of permits will fall to 0.935 million units in October. Last month’s increase rate appears to be the strongest since June 2008.

Elsewhere, the euro was lower against the pound, with EUR/GBP cross down 0.08% on a daily basis to trade at 0.8365 at 9:47 GMT. EUR/JPY pair soared 0.76% to trade at 138.53 at 9:48 GMT, registering a new four-year high.