Euro Consolidates Despite Robust German Manufacturing and MACD Buy Signal

EUR/USD lifted to a peak of 1.1280, up from the two-day low at 1.1179. Thursday’s 1.1379 peak remains some way off. Support on the currency pair is seen near the 10-day moving average at 1.1050. Momentum is positive as the MACD (moving average convergence divergence) index generated a buy signal.

The Bundesbank raised its growth outlook for Germany, and German manufacturing orders data came in much stronger than expected, helping lift Bund yields toward 0.90% at the 10-year maturity. Friday’s data followed Eurozone May inflation numbers, released earlier in the week, and an upward revision in ECB CPI forecasts. The data have collectively give the euro a broadly improved fundamental underpinning.

A poll in Greece also found growing electoral support to make concessions to creditors in bailout negotiations. Focus now shifts to the U.S. May payrolls report, where the BLS is expected to produce a headline rise of 220k jobs and an unchanged unemployment rate of 5.4%. Markets will be sensitive to any above or below expectations outcome given the focus on the timing of Fed tightening.

In European economic news, German April manufacturing orders came in much better than expected, rising 1.4% month over month against our median and forecast of 0.4% month over month. The monthly rise was mainly boosted by very strong export demand. March was revised up to 1.1% month over month and the two strong consecutive increases confirm that the German recovery remains on track, even if confidence indicators have been somewhat mixed. Especially as retail sales and consumer confidence also remain very strong. Unlike previous recoveries, the current German upturn is mainly driven by domestic demand and consumption, as opposed to export led. The weaker EUR also should help export demand, but the tight labor market will lead to sizeable wage gains this year and is likely to undermine Germany’s long term competitiveness.

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