Euro started a new bull rally after Greece accepted and ratified through parliament the stricter conditions imposed on its third bailout. Price has gone from an open of 1.1017 on 11th August to today’s high at 1.17129. Economic data over the past weeks has not been as great as expected, especially employment numbers which Federal Reserve chairwoman Yellen has repeatedly stated will be the main metric, along with other economic data, to take decisions on the timing for rate increases. Last ADP (Automated Data Processing Inc) data for employment of private jobs showed an increase of 185k new jobs, considerably lower than the previous month of 229k new jobs and non-farm payrolls this month showed an increase 215k jobs in line with expectations but lower than last month’s 231k. The prospect of rate increases and a strong US economy is what has been pushing the EURUSD to its recent low last March 1.04613. While the Euro is likely to have low interest rates for the next two years with sluggish growth, an increase then in US interest rates makes the US dollar extremely more attractive.
The strength in USD against the Euro has been based upon economic strength in the USA that has had an average GDP growth of 2.5% over the past two years while the Euro zone has had a GDP growth of around 0.5% this may have caused an oversold market. Recent data show that the economy may not be heating up as much as previously thought. Interest rate hikes in a reduced economic activity environment will only make things worse and reduce GDP growth when inflation is not yet a concern. This possibility is what has been affecting the US stock market over the past three days, 3 successive drops in the S&P, and considerably large ones, seem to by creating the possibility of a large correction in stocks. This will also cause the USD to be sold against the Euro and will have added extra momentum to this currency pair that was already in a minor bull trend.
There is more data expected during the week that may shed more light on the state of the US economy, Tuesday sees PMI (purchasing managers index) and Consumer Confidence, Wednesday Durable Good orders and Thursday we have a string of data, GDP growth, PCE (Personal Consumption Expenditures) and initial Jobless Claims.

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