EUR/USD Inches Higher As Both Currencies Enjoy Gains

The EUR/USD inched up slightly on July 24, as the release of robust economic data in the U.S. and the European Union coincided with both currencies climbing higher.

During the day, the currency pair fell to 1.3438, its lowest since Nov. 21, according to Bloomberg News. The EUR/USD recovered to $1.3467 by 2:33 p.m. in New York. The U.S. dollar rose against many currencies, reaching a one-month high against a basket of peers, and the euro gained versus the yen.

Euro plunges to 8-month low
Earlier in the week, on July 22, the common currency plunged to an eight-month low against the U.S. dollar after data showed that U.S. inflation rose in June, The Wall Street Journal reported. The EUR/USD declined to 1.3468 amid that revelation. The government released this information at a time when many market participants expect the European Central Bank to harness policy to combat low inflation in the region.

“The euro moved a lot after the data, but not because of the data,” Lennon Sweeting, a dealer at USForex in San Francisco, told the news source. “The market has been pretty bearish on the euro. This provided the selling opportunity.”

Common currency recovers
The euro recovered on July 24, enjoying some gains after Markit Economics said its euro zone manufacturing index increased to 51.9 in July from 51.8 in June, Bloomberg News reported. This figure beat the forecast of 51.7 provided by economists taking part in a Bloomberg poll. A separate services index for the region also surpassed expectations, reaching a more-than three-year high of 54.4, according to Investing.com.

Reports about individual nations in the region showed promise, as the both the French services industry and the German private sector improved, the media outlet reported. In addition, data provided by the Office for National Statistics revealed that U.K. retail sales rose 3.6 percent in June from one year before.

Robust U.S. data
Market participants involved in forex trading responded to U.S. Labor Department data showing that jobless claims dropped to a seasonally-adjusted eight-year low of 284,000 in the week ending July 19. The last time the number of initial applications for unemployment benefits was lower was in February 2006.

This result beat the predictions of market experts, who had forecast that these claims would fall by 5,000 to 308,000 during the period, according to Investing.com.

This robust data adds to separate figures showing that in June, U.S. employers added 288,000 net positions, according to Bloomberg News. As a result, the nation has created an average of 231,000 positions per month so far in 2014. If this keeps up, the country’s labor force will have the strongest year since 1999. Mark McCormick, a macro strategist at Credit Agricole SA in New York, commented on the robust economic data.

“Recent U.S. data has been consistent with the view that the U.S. is recovering nicely,” he told the media outlet. “The macro story is still supportive of a dollar rally in the second half. We look for the dollar to gather momentum once we hit September, so not sure if this mini-rally has legs.”

Fed stimulus
If the labor market keeps improving at a robust pace, this development could have a major impact on future Federal Reserve stimulus, Investing.com reported. Many believe the central bank will cease quantitative easing in October. The financial institution started lowering its monthly bond purchases in January, and market participants have been speculating on the pace with which these transactions will be tapered and then phased out.

Market participants will next speculate on when the Fed will start to increase its benchmark borrowing rates, according to the news source. Many feel uncertain about the timeline, and this ambiguity has been causing the greenback to fluctuate.

Bearish euro bets
Over the last several months, global market participants have been mounting their bets against the euro, according to data provided by the U.S. Commodity Futures Trading Commission and reported on by The Wall Street Journal. Many of these speculators are waiting for the Federal Reserve to boost its benchmark rates or for the European Central Banks to proactively combat inflation.

Aroop Chatterjee, chief FX quantitative strategist at Barclays, chimed in on this situation, according to the news source. He emphasized that given the expectations investors have of the ECB, robust U.S. economic data and geopolitical concerns, “there are plenty of reasons to be bearish on the euro.”

Brad Bechtel, managing director of Faros Trading LLC in Stamford, Connecticut, also spoke to currency market trends, Bloomberg News reported.

“Monetary policy remains ultra-accommodative and the economy is cruising along in the right direction,” the media outlet reported.

Individuals interested in forex trading might benefit from studying the recent price movements in the EUR/USD. Reading about the factors that market experts cited for the fluctuations could also be quite helpful.