EUR/USD rises most since October amid better-than-expected euro zone data

The euro surged the most in three months against the US dollar after PMI data boosted optimism that the economic growth in the euro area is gaining momentum.

EUR/USD advanced 0.75% to trade at 1.3646 at 09:55 GMT, the biggest daily increase since October 22nd, after which consolidation followed at 1.3635. Support was likely to be received at January 21st low, 1.3516, while resistance was to be met at January 16th high, 1.3650.

The euro was supported after a series of upbeat reports showed the activity in the manufacturing and services sectors in the euro zone is expanding, which boosted speculation the economic recovery in the euro area is gaining momentum.

The market research group, Markit Economics released today its preliminary PMI data for Germany, France and the euro zone.

Data showed the gauge of manufacturing output in the euro area increased to 53.9 in January, the highest in 2-1/2 years. According to the median analyst forecast the index should have increased to 53.0 from Decembers reading of 52.7.

A separate report by Markit Economics, revealed its gauge of activity in the euro zones services sector advanced to 51.9 this month from 51.0 in the previous month. According to the median analyst estimate the index should have increased to 51.4.

Data on the same indicators also showed an improvement in the manufacturing output and services activity in Germany and France.

The gauge, which measures the output in the German manufacturing increased to 56.3 in January from 54.3 in the previous month. At the same time the gauge, which tracks the activity in the German services sector also advanced to 53.6 in January from 53.5 in the preceding month.

In addition, the gauge, which measures the output in French manufacturing also advanced to 48.8 in January from 47.0 in December. Moreover, the gauge, which tracks the activity in the French services sector rose to 48.8 in January from 47.0 in the preceding month.

“The data on manufacturing and services suggested the economic recovery in the euro region is gaining traction; the outlook is positive for the euro” said Jane Foley, a senior currency strategist at Rabobank International in London, cited by Bloomberg.

Meanwhile, greenback’s demand continued to be supported by a recent batch of overall upbeat reports, which increased bets for further cuts in Fed stimulus.

Data showed on Friday that 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.

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.

Later in the day the Bureau of Labor Statistics in the United States is expected to publish its weekly report on initial jobless claims, an indicator for lay-offs in the country. Experts’ projections show an increase in claims by 4 000 to 332 000 during the week ending on January 18th.

At 15:00 GMT the National Association of Realtor’s (NAR) will announce the number of existing home sales in the United States. Preliminary estimates point that sales probably increased 1.0% to the annualized 4.93 million units in December, while in November the indicator reached 4.90 million units. Better than expected figures will certainly heighten the appeal of the US dollar.

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.

Elsewhere, USD/CAD reached a 4-1/2-year high at 1.1174 at 09:00 GMT, after which consolidation followed at 1.1159, adding 0.65% for the day. Support was likely to be received at January 22nd 1.0954, while resistance was to be encountered at July 17th 2009 high, 1.1198.