EUR Underpinned by EM + Corporate Flows, Eurozone PMI Exuberance Tempered by Poor French PMI Readings

The Euro should really be doing better than this considering the strength of today's PMI data out of the Eurozone (which we look at below).

Composite PMI Data confirms the Eurozone is on the road to recovery

The Euro initially pushed higher following the release of some good PMI data, indeed we saw EUR/GBP gain by half a percent at one stage.

The composite PMI reading for the Eurozone rose to 51.7, beating expectations for 50.9 and up from 50.5 in July.

The eurozone Services PMI rose more than expected from 49.8 to a 2-year high at 51.0, and the manufacturing PMI rose from 50.3 to 51.3.

The German PMI for manufacturing rose to 52.0 following 50.7 in July, a 2 year high.

However, exuberance was tempered when both French PMI’s disappointed expectations, and the services PMI declined in August from the previous month.

French Manufacturing PMI was 49.7, below expectations of 50.3 while Services PMI came in at 47.7, a big miss on forecasts for 49.

Corporates, Emerging Market Money Repatriations Keep Euro Underpinned

Moving away from the fundamentals we earlier heard from FX Market Alerts who explain how a number of other factors are driving the Euro today:

"EUR/USD a tad firmer on early European real money demand, up at 1.3345-46, but locked in range around 1.3333 to 1.3360. With EUR weighed by Fed taper expectations, and concerns over Greece bailout / Germany elections.

"But, supported by EUR/EM demand, as funds flow out of Emerging Markets - back into USD, EUR, GBP. CHF. EUR/USD eye series of PMIs from 0658GMT - starting with French at 0658GMT, German at 0728GMT, then Eurozone at 0758GMT. All bracing for upside surprises, could see EUR buying. Major US bank has revised call for ECB - and no longer expects ECB to cut rates in Q4.

"EUR/USD offers 1.3350-60/1.3400, eye Asian Cbs, sovereigns, Swiss, supranational offers, given intervention in USD/EM to cap USD rally.

"INR hit new lows of 65.44-45, and still falling, USD/INR at 4-year highs 10,800-850 levels, USD/THB at 2-year highs 32.15, but talks of RBI, BI, and BoT intervention, selling respective USD/Asian regionals. EUR/USD bids 1.3300-20, stops below 1.3280."

Euro Dollar Outlook: Significant Resistance Scuppers Euro Rally

There could be an element of technical failure behind today's decline in the Euro Dollar exchange rate.

Luc Luyet at MIG Bank says:

"EUR/USD remains in a succession of higher lows with a significant support at 1.3190 (02/08/2013 low). However, the failure to break the strong resistance at 1.3417 on a daily basis and the short-term overbought conditions call for caution. An hourly support is at 1.3311.

"The region between 1.3417 and the annual high is expected to see a fair degree of resistance and should likely offer a reasonable short entry opportunity in the near future."

Fed Minutes Spark a US Dollar Rally

Of course, there is also the issue of all-round dollar strength which creates an environment in which it is difficult for any currency to rally in.

Emmanuel Ng at OCBC explains that the outcome to the release of last night's FOMC Minutes are driving the US dollar higher:

"In the wake of the latest FOMC minutes, the dollar pulled above the majors on Wednesday with the greenback also continuing to flex higher in early Asian dealings on Thursday. Meanwhile, the antipodeans also under performed across the board on the back of a shaky equity landscape.

"In essence, while the Fed minutes did not show a unanimous discussion to begin the taper in September, it also did little to dilute the market perception that a tapering may well occur from the September FOMC, with US Treasury and Bunds yields climbing as a consequence.

"Note that earlier in the session, July existing home sales had also out performed expectations. Going ahead, expect markets (and the Fed) to remain very data dependant, with the next nonfarm payrolls report on 6 September likely to be the most watched in recent years."