Experts focus on EUR-USD movement

EUR-USD pair traded notably stronger yeasterday morning and even breached the 1.10 mark caused everybody surprise. The market experts could not come up with any immediate cause for the move. Neither had there been any data publications around 9:00am CEST nor was there any news, e.g. from Greece.

Commerzbank argues "It was not a case of USD weakness, but pure EUR strength that caused the move. Not just a glance at EUR-GBP but also at our factor model suggests that."

In the afternoon the news flow improved, the reaction of the FX market did not become any less confusing though. The number of initial jobless claims in the US fell to 255k last week and was thus well below the expected 280k. The data is now published every week and therefore usually has little effect on the market. That is also due to the fact that the analysts' expectations are usually very close to the actual result; which made yesterday's positive surprise even more remarkable. 

Commerzbank estimates, "The deviation from market consensus was an impressive 3.7 standard deviations. And what does EUR-USD do initially? The pair appreciates. It took the market a couple of minutes to see sense and it then reacted with (justified) USD strength to positive US data. So yesterday clearly demonstrates one thing: confusion is ripe at the moment and we should not be surprised over the coming days if there were going to be some surprising moves on the market."

On the data front attention is this morning focussing on the July PMIs in the euro zone. It will have to be seen whether the economy remains strong enough to put up resistance to global developments. 

According to Commerzbank, "We assume that weaker demand from the Emerging Markets will soon show an effect on the euro zone economy. We therefore expect a fall of the leading indicator in the manufacturing sector to 52 points (consensus estimate 52.5 points). If the market does not display a confused reaction once again EUR-USD should tend to remain under pressure. Overnight the pair eased back below the 1.10 mark."