The Euro surged higher on Thursday despite the fact that European economic data remains broadly disappointing.
In fact, the Euro-zone services and manufacturing PMI reports both remained 50 – signaling a contraction in business activity – for the third consecutive month in August. Indeed, businesses and consumers alike appear to be cutting back on spending amidst high energy costs, tight credit conditions, and waning global demand. This is much of the reason why Credit Suisse overnight index swaps are pricing in over 25bps worth of rate cuts within the next 12 months, which leaves the Euro prone to further declines in the medium to long-term. However, given the oversold nature of currency and current forex positioning, EUR/USD may be prone to additional gains in the short-term, though 1.4960/1.50 should provide solid resistance.
