Despite Data, Euro Under Pressure

Despite the uptick in CPI readings across all German states, together with a broadly encouraging EU based Manufacturing PMI readings, EUR remained under-pressure as concerns over the never-ending Greek debt drama continued to weigh on sentiment. The latest round of weakness came after Greece and its creditors failed to reach a deal over the weekend, with PM Tsipras labelling some of the demands made by bailout monitors as “absurd”. Still, speculation over a potential deal between the country and its creditors did see a modest recovery at the mid-point of the trading session, but given the unsubstantiated nature of the reports the recovery was short-lived. At the same time, the release of the much better-than-expected US Manufacturing ISM, which rose to its highest level since February, together with a strong recovery in Construction Spending, prompted the USD index to surge higher (in close to proximity to one-month high), further weighed on the pair. As a guide, the release of much better-than-expected data, which also showed an improvement in the ISM Employment Index to its highest level since January, comes ahead of the key monthly NFP jobs report, where analysts expect headline reading to come in at 228k. The consequent upside by the USD index, together with the ensuing pressure in T-Notes saw USD/JPY benefit from interest rate differential flows. Looking elsewhere, an upbeat commentary by the CBI, which suggested that the UK economic growth has risen to its fastest pace for a year, boosting hopes that a slowdown in the first quarter of 2015 will be short-lived, together with a weaker EUR, failed to support the pair. Instead, the price action remained a by-product of a stronger USD index and also the uncertainty surrounding potential exit from the European Union. The release of lower-than-expected UK Manufacturing PMI reading, with the report also highlighting a fall in the Manufacturing PMI Employment component to its lowest level since April 2013, did little to counteract the selling pressure.

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