EUR/USD Recovers Despite Disappointing PMI Data

• The Flash Eurozone PMI Composite Index gave back the ground it made in July, posting 52.8 in August, down from 53.8. The fall was the fourth in six months and was sharper than the consensus forecast. At this level, the PMI is still consistent with GDP growth of about 0.3% per quarter, which would be an improvement on stagnation in the second quarter.
• Output increased in both the manufacturing and service sectors, with service providers again reporting the sharper rate of expansion. However, rates of growth eased in both sectors. Flash Eurozone Services PMI amounted to 53.5 vs. 54.2 in July. Flash Eurozone Manufacturing PMI amounted to 50.8 vs. 51.8 in July.
• Looking at the data by country, the marked divergence between the performances of Germany and France showed signs of narrowing. German index fell to 54.9. The French index inched up for the second month running but, at 50.0, it points to continued stagnation of economic activity. Further progress was made by the nations outside of the big-two economies.
• Today's PMI data put the pressure on the ECB to do more to support the euro-zone economy, although other major central banks start to move in the opposite direction. The most likely scenario is that the central bank will allow recent stimulus efforts to have an effect on the real economy before making any further moves.

• The Fed's minutes released on Wednesday said: "Labor market conditions had moved noticeably closer to those viewed as normal in the longer run". Policymakers agreed that improvements in the labor market over the last year had been greater than expected. The Fed has pledged to keep interest rates near zero for a considerable period after it wraps up a bond-buying stimulus program in October. The minutes intensified the debate that tightening cycle will take place sooner than later.
• The USD appreciated after "hawkish" FOMC minutes. The EUR/USD opened the Asian session just below 1.3260 and then hit the session low at 1.3242 but did not break below this support level from September 11, 2013. We saw a slight recovery then, the EUR/USD did not react to weaker-than-expected PMI data. The next important support level is 1.3220 (61.8% of 1.2740-1.3995). In the opinion of GrowthAces.com the break below that level will be a strongly bearish signal. We stay flat on the EUR/USD.

Significant technical analysis' levels: Resistance: 1.3324 (high Aug 20), 1.3364 (high Aug 19), 1.3380 (21-dma) Support: 1.3230 (low Sep 10), 1.3157 (low Sep 9), 1.3104 (low Sep 6)

GROWTHACES.COM TRADING POSITIONS:

• USD/CAD: long at 1.0905, target 1.1070, stop-loss 1.0925 (we have moved the stop-loss from 1.0840 previously)

• GBP/USD: long at 1.6580, target 1.6710, stop-loss 1.6535

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