Euro Momentum Turns Positive as Sentiment Climbs Higher

Sentiment readings in Europe were stronger than expected, helping the Euro gain traction and allowing the exchange rate against the greenback to hit a December high. Momentum has turned positive allowing the technicals to point to a higher EUR/USD.

Today the German ZEW investor confidence jumped to 34.9 in December from 11.5 in the previous month. This is much stronger than expected and the highest reading since April. The December number lifted the average for the fourth quarter to 14.3, slightly above the 14.2 in the previous quarter. With Draghi focused on crisis countries and weak inflation data, the central bank remains on course for QE next year, despite the rebound in confidence readings.

The Eurozone PMIs came in stronger than expected, with the manufacturing reading rising to 50.8 from 50.1 and the services reading to 51.9 from 51.1, which brought the composite to 51.7 from 51.1 in November. The December reading still left the composite at 51.6 in Q4, down from 52.8 in the previous quarter, pointing to decelerating, but still positive economic activity.

Despite a better aggregate number, the German composite PMI unexpectedly declined, as the services reading dropped to 51.4 from 52.5 in the previous month. The manufacturing PMI meanwhile came in better than expected and jumped to 51.2 from 50.3. The mix left the composite at an 18-month low of 51.4, down from 51.7 in the previous month and below the consensus of 52.3.

Support on the currency pair is seen near the 10-day moving average at 1.2397, while resistance is seen near 1.2595. The MACD (moving average convergence divergence) index has generated a buy signal as the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI (relative strength index) moved higher with price action, reflecting accelerating positive momentum, while printing a reading of 54, which is still in the middle of the neutral range and has further to climb.

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