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Euro post slight gains as euro-area factories PMI expands faster than estimated

February 3, 2014

Euro edged higher in Europe Monday, reversing earlier losses, as data showing solid Eurozone factories data in January overshadowed concerns that weakening inflation pressures in the region will prompt the European Central Bank (ECB) to ease monetary policy. The euro found some support after Eurozone Purchasing Managers' Index (PMI) on manufacturing posted their strongest month since mid-2011 in January, led by an impressive pick-up in Germany and a revival in the Eurozone`s periphery members. Markit`s final Eurozone manufacturing PMI rose to 54.0 last month, topping earlier flash reading of 53.9 and above December`s 52.7. In Germany , the manufacturing sector was revised up at 56.5 versus 54.3 a month earlier. Euro had previously declined to a two-month low amid fears that the slowly recovering inflation is getting dangerously low, adding pressure on the ECB to take further policy action especially after ECB President Mario Draghi unexpectedly cut the benchmark rate to a record 0.25 percent in November after inflation slowed sharply below 2 percent target. A report released last week showed annual consumer prices in the block grew only 0.7% in January- the lowest inflation reading for the single currency area in nearly four years, stoking fresh fears of a Japanese-style wave of deflation. The euro, reacting to the data the euro edged up against the U.S. dollar, driving the EURUSD pair to trade around $1.35070 , while recording the highest level of $1.35182 and lowest of $1.35070 . The pair is expected to face resistance at $1.35698 , stabilizing above this level would be positive for the pair to extend gains and head toward $1.35698 levels. The U.S. dollar extended losses for a second straight session, reversing gains against the yen as a sell-off in emerging market assets and a possible slowdown in China continued to underpin yen's safe haven demand. Sentiment was not helped by more downbeat reports from China where official data released over the weekend showed that China's manufacturing PMI ticked down to a five month low of 50.5 in January from 51.0 the previous month. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, attempted to rebound after falling previously. The index was last seen at 81.26 after opening at 81.24. Based on the four-hour chart, the USDIX so far hit a session high at 81.28 and a session low at 81.21. The greenback also inched down against the yen, pushing the USDJPY pair up to trade at 101.752 after opening at 101.867. The pair so far hit a session low of 101.664. The Australian dollar rebounded against the dollar after previously falling ahead of the Reserve Bank of Australia's board meeting on Tuesday, amid expectations that it would keep interest rates on hold. The AUDUSD pair is currently trading at $0.8798 after starting the session at $0.87917 .The pair so far hit a session high of $0.87965 . Stabilizing above $0.88209 will probably keep the bearish wave intact and will likely resume.

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Source: Financial Markets

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