Ezone PMI Disappoints, EURUSD Breaks 1.40

Negative Eurozone sentiment pushes the single currency down across the board. Earlier during the session market broke below the psychologically important 1.40 handle but has since recovered a portion of recent losses. PMI data came worse than expected.

EZ manufacturing PMI deteriorated to 7 months low after it fell sharply to 54.8 from the last reading of 58 and PMI services came out at 55.4 from previous 56.7. Market expected 57.6 and 56.6 respectively. French and German PMI numbers also disappointed and marked multi months worst readings. The exception was French services PMI that decreased only slightly to 62.8 from previous 62.9 which isstill near recent highs.

Little dose of confidence was injected to the markets when analysts from Moodys and Fitch rating agencies reaffirmed a stable outlook for Italy. Italian government is preparing a deficit cutting measures in response to last week cut in outlook to negative by S&P.

Since Friday EURUSD is down almost four cents. Euro represents 58.6% of the value of USD index so the recent fall in EURUSD helped USD index to break above the technically important area around 76.00. This resistance given by November 2010 low that coincides with 38.2% fib.ret. of the fall from 81.30 to 72.69 should now act as support. USD index is currently trading around 76.25.

Current USD strength is reflected in pricing of commodities that are trading near sessions lows, spot gold is holding slightly above 1500 USD/oz and spot silver trades at 34.75 USD/oz.

There are no data releases during the upcoming US session. Trading will be mainly determined by risk on/off sentiment and by technical ndicators. CAD traders should keep in mind that Canada has a bank holiday today in observance of Victoria Day. The liquidity is likely to be poor so trading within narrow range with occasional erratic movement is probable.

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Patrick Urban