Published: Tue, 24 Mar 2009 13:06:27 +0100

Euro Unable to Find Support Despite Stronger PMI Data

(CEP News) - Better-than-expected European PMI data are not helping the euro make new gains against the U.S. dollar on Tuesday morning. A modest drop in U.S. equity futures is having more of an impact as EUR/USD is dragged lower ahead of the North American trading session.

The euro traded higher during the Asian trading session but gains were capped just below the 1.37 USD level. EUR/USD dropped more than 1.5 cents after hitting session highs and is currently trading near session lows in the 1.35 USD area.

The euro has traded in in a near three-cent channel since the Fed announced its quantitative easing measures on March 18, and remains near two-and-a-half month highs.

Currency markets have shrugged off modestly better-than-expected European purchasing managers indexes. The euro zone manufacturing PMI rose 0.5 points to 34.0, higher than the expected flat reading, according to advance estimates from Markit Economics, while the services PMI also rose unexpectedly, improving to 40.1 from February's 39.2 level. Expectations had been for a further deterioration to 39.1.

Despite the positive data, the drop in equities could hint at further losses in the euro, according to currency strategists. There is also some speculation among strategists that 1.37 might mark the top in EUR/USD.

Adam Cole, global head of FX Strategy at RBC Capital Markets, said the euro was unable to break through new ground on Monday, despite the S&P 500 closing up more than 5% and the Dow Jones Industrial Average closing up 6.8%.

"Failure of USD to suffer materially as stocks have jumped suggests, tentatively at least, that USD bulls may have the upper hand going forward," he said.

Currency strategists from KBC are expecting EUR/USD to continue to trade sideways as the Fed's quantitative easing measures provides a solid floor for the cross.

"The positive global market reaction to the US toxic assets plan gives EUR/USD downside protection, but nothing more than that. So, at least for now it looks as if the easiest part of the euro gains is behind us," they wrote in a research note.

Euro/USD down 0.88 cents to 1.3545

USD/CAD up 0.37 cents to 1.2257

USD/Yen up 1.30 points to 98.25

GBP/USD up 1.66 cents to 1.4738

AUD/USD down 0.56 cents to 0.6996

Euro/Yen up 0.91 points to 133.08

Euro/GBP down 1.66 pence to 0.9191

GBP/CAD up 2.67 cents to 1.8066

CAD/Yen up 0.88 points to 80.17

Euro/CAD down 0.59 cents to 1.6602

The U.S. Dollar Index is up 0.46 points to 83.86

All data taken at 8:03 a.m. EDT.

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca