EUR/USD jumps off 2-month lows in subdued trade

The euro advanced against the US dollar in subdued trade on Monday as US markets remained closed due to a national holiday.

Having reached a 2-month low at 1.3508 at 00:15 GMT, EUR/USD rebounded to trade at 1.3561 at 14:40 GMT, gaining 0.16% for the day. Support was likely to be received at November 25th low, 1.3490, while resistance was to be encountered at January 17th high, 1.3616.

A series of overall upbeat reports released on Friday, continued to support greenbacks demand.

Data showed US home construction slowed less than analysts had projected, while industrial output expanded for a fifth consecutive month. Only the consumer sentiment came at a lower-than-expected reading in January, but this was not enough to change the overall market consensus that Fed will continue tapering throughout 2014.

A report by the US Commerce Department, showed that housing starts decreased 9.8% to 999 000 annualized rate in December, after they have been revised to 1.11 million pace in the previous month, the strongest figure since November 2007. Analysts had expected that housing starts will decline to 985 000 in December. Building permits fell by 3% to a 986 000 pace.

Last year, builders began constructing 923 400 homes, which is 18.3% higher than a year ago and is the largest number since 2007, when 1.36 million houses were constructed.

At the same time, industrial production in the United States rose 0.3% in December on a monthly basis, in line with expectations, supported by overall recovery in manufacturing and mining sectors. On annual basis, industrial output expanded 3.7% in December, or 0.9% higher than the peak registered before the global recession. November’s result has been revised down to a 1.0% increase from 1.1% gain previously. In October and September, however, nation’s industrial production has been moderately revised up.

The release of worse-than-expected consumer sentiment data in January, slightly pressured the greenbacks demand. January’s preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index registered at 80.4, defying analysts’ projections for an advance to 83.5 from December’s final reading of 82.5.

Overall, the reports provided support to greenback’s demand, as they favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions.

The bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

Meanwhile, the euro was pressured last week after a report by Eurostat revealed the consumer price inflation in the euro zone rose by 0.3% in December, in line with analysts’ expectations and after a 0.1% drop in the preceding month. On year-over-year basis, the CPI increased by 0.8% in December, unchanged from November’s preliminary estimates and in line with analysts’ projections.

The data showed that the rate still remains well below ECB’s target of 2% rate of inflation.

The monthly bulletin of the ECB released on Thursday, largely reflected the statement by its President Mario Draghi, following central bank’s decision to lower interest rates in November. In its bulletin ECB reiterated that it will stick to monetary policy of low interest rates until it is needed. The central bank also expected interest rates to remain at these historically low levels for a prolonged period of time and the inflation rate to remain weak in the coming months.

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