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Euro pares 50% of 5-day losses

Key FX market drivers:

- Tensions have escalated between France and the UK.

- Retail sales in Germany fell in September.

- US October manufacturing activity beats expectations.

The EURUSD pair surged 0.39% to 1.1606 on Monday, November 1. The single currency started to trend higher during the Asian session. Buyers drew support from gains in the EURGBP pair. The cross pair rose 0.61% to 0.8500.

Sterling came under pressure from the fishing rights feud between France and the UK. Traders even brushed aside the decline in Germany’s September retail sales, which fell short of the consensus by a wide margin.

US macro data were released during the North American session. The Manufacturing Purchasing Managers Index (PMI) in the US decreased in October, coming in at 58.4 in October, down 2.3 from 60.7 in October. The market expectation for the index was 59.2 in October. The release notes that all segments of the manufacturing economy were negatively impacted by record-long raw material lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.

Today’s macro agenda (GMT 3) 

  • 10:30 Switzerland: inflation rate (October), retail sales (September)
  • 11:15 Spain: Markit manufacturing PMI (October)
  • 11:45 Italy: Markit manufacturing PMI (October)
  • 11:50 France: Markit manufacturing PMI (October)
  • 11:55 Germany: Markit manufacturing PMI (October)
  • 12:00 Eurozone: Markit manufacturing PMI (October)
  • 23:00 RBNZ financial stability report (semi-annual)

Current outlook

Major currencies have been showing mixed performance in European trading, with most trading in the red. The aussie dollar has posted the biggest losses, losing ground after the release of minutes from the RBA November monetary policy meeting. The focus still remains on meetings of the Federal Reserve, the Bank of England and the non-farm payrolls report. Investors expect the Fed to start tapering bond purchases. We look forward to hearing from Fed Chair Powell on Wednesday.

Technical analysis

By the time of writing, was trading at 1.1609. The euro recovered 50% from its decline from 1.1692 to 1.1535. Price action is at the 55-day SMA (balance line) and the 67-degree angle. Buyers were able to gain a foothold above 1.1590, showing that they might still manage a retracement to 1.1690. Support came from the EURGBP cross and yesterday's strengthening of the franc. The Swiss franc won back Friday's losses and moved higher against the dollar.

Notably, the UST10 yield is in decline. If the yield drops below 1.1520 we can expect the euro to extend gains, taking its cue from the franc. For today, the correction could rise to 1.1570, a level that would test the strength and resolve of buyers to move higher. Otherwise, price action could head to 1.1609, forcing sellers keep their finger on the pulse so that selling could resume before the Fed meeting should the opportunity arises.

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