EUR/USD hits highs unseen in six weeks, on Mario Draghi’s comments, Euro zone economic optimism

The euro advanced to six-week highs against the US dollar amid ECB Governors comments and rising optimism in the Euro zone.

EUR/USD reached a session high at 1.3774 by 14:30, gaining 0.24% for the day, the strongest since the end of October. Support was likely to be received at December 9th low, 1.3695, while resistance was to be met at October 30th high, 1.3785.

The euro received support by the ECB Governor Mario Draghi comments, made at a conference in Rome today. Mario Draghi asked national governments to reform their economies and complete the European Banking Union, remarking that the ECB had gained time for action, by providing price stability over the last 15 years.

The ECB Governor said, cited by Thomson Reuters: “It is now crucial to complete this agenda at the European and national level”, and added that governments should focus on key reform priorities: “completing the banking union, implementing growth-friendly fiscal consolidation, and structural reforms in labor and product markets”.

Draghi explained that it is crucial for ECB to maintain public trust and assured that there is no threat for Europe to enter a Japanese-style deflationary cycle.

The reports out of the euro zone fueled optimism that the 17-nation common area is recovering.

The French National Institute for Statistics and Economic Studies reported that the manufacturing output grew by 0.4% in October, larger than analysts projections of a 0.2% gain. In September the Index of Manufacturing Production decreased by a revised 0.2% from an initially estimated decline of 0.7%. The manufacturing production grew at an annualized rate of 0.7% in October, outstripping analysts estimates of 0.2% gain. In September the index fell to a revised 1.2% from an initial estimate of 1.3% decline.

The Italian National Institute of Statistics (ISTAT) reported that the nations industrial production surged to 0.5% in October, from 0.2% in September. Analysts median forecasts pointed to a modest gain of 0.2%. A separate report by the same institution showed that Italy avoided contraction in the third quarter. The final Italian GDP remained flat in the third quarter, after an initial estimate of a 0.1% decline in November. Median analysts forecasts also showed a decline in the Italian GDP by 0.1%. The final GDP of the country remains flat for the first time since September 2011, when it advanced by 0.3%. The Italian economy slowed the pace of the quarterly contraction, with GDP falling at an annualized 1.8% in Q3, which is the smallest decline since the second quarter of 2012. Preliminary estimates in November showed a GDP contraction of 1.9%, while forecasts also supported a 1.9% decline.

Meanwhile, Federal Reserve Bank President for St. Louis James Bullard remarked on Monday that Fed tapering may be just around the corner, after employment data in the United States demonstrated a certain improvement.

“A small taper might recognize labor market improvement while still providing the Committee the opportunity to carefully monitor inflation during the first half of 2014”, James Bullard said in prepared remarks. “Should inflation not return toward target, the committee could pause tapering at subsequent meetings.”

On Friday, a report showed the US unemployment rate reached a 5-year low of 7.0% in November. It also became clear that US economy managed to add 203 000 new jobs in November, after the number of added jobs in October has been revised down to 200 000 from 204 000 previously. Experts had projected that private sector in the country will add 183 000 job positions in November.

The minutes of FOMC’s meeting in October pointed that Federal Reserve officials may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves. Central bankers are set to reconvene on December 17-18th.

The market may be underestimating the probability “of a vote to taper” this month, and the dollar may have begun a multi-year bull market, Credit Suisse Group AG wrote in a December 4th report, cited by Bloomberg.

Last month, a survey by the same media revealed that the Fed will probably trim its asset purchases to $70 billion from $85 billion at its March 18th-19th meeting.

Elsewhere, having reached the strongest level since August 2011 at 1.6466 at 04:40 GMT, GBP/USD traded at 1.6454, gaining 0.16% on a daily basis, at 10:44 GMT. Support was likely to be found at December 9th low, 1.6324, while resistance was to be met at August 29th 2011 high, 1.6534.