EUR/USD: Euro Stays On The Defensive

The euro moved lower versus the US dollar in the previous session. Whilst eurozone manufacturing data was better than expected, US manufacturing figures rebounded strongly, boosting demand for the US dollar. EUR/USD dropped to a low of US$1.1037, the sell off eased slightly into the close.

The pair is holding edging southwards in early trade on Tuesday as investors look ahead to US data before the US jobs report at the end of the week.

Euro vs USD – PMI rose to 47.9 in January, up from 46.3

The euro traded broadly flat in the previous session after date revealed that Eurozone manufacturing operating conditions weakened in January, however at a significantly slower pace. The IHS Markit Eurozone manufacturing PMI rose to 47.9 in January, up from December’s 46.3. The index has remained below the 50 mark which separates expansion from contraction for 12 months. However, January’s figure was the highest reading for 9 months.

The improvement comes as tensions ebb between the US and China following the signing of the first phase trade deal. Eurozone manufacturing and particularly German manufacturing was hit hard by weak global demand amid the trade dispute.

There is no high impacting eurozone data today. Coronavirus fears will keep investors on edge. Doubts are growing over whether China will be able to achieve the 6% GDP growth target, especially as spending over the Lunar New Year will have been notably less that $140 billion spent the previous year across the same holiday.

Dollar

The dollar is holding steady as investors look ahead to US factory orders data later today. Analysts are expecting the data to add to evidence that the US manufacturing sector is recovering as tensions ebb between US and China following the signing of the first phase trade deal.  Expectations are for factory orders to increase 1.1% month on month in December. This would be up from November’s -0.7% monthly decline.

January’s ISM manufacturing index was released in the previous session. The data boosted the US dollar after showing that activity unexpectedly rebounded in January after contracting for 5 consecutive months. The surge in new orders boosted optimism that the prolonged slump in business investment has bottomed out.

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