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Improving fundamental data has helped provide a bid tone for the Euro as it reached as high as 1.3067 during European trading on the back of the PMI composite and industrial new orders releases posted better than expected results. The April survey of business executives rose to 40.5 from 38.3 as both the manufacturing and service sectors rose.

Talking Points
• Japanese Yen: Bounced From Support At 50-Day SMA
• Pound: Finding Support On Risk Appetite
• Euro: Improving Fundamentals Provide Bid Tone
• US Dollar: Existing Home Sales On Tap

Euro Finds Support As Improving PMI Survey Generates Optimism

Improving fundamental data has helped provide a bid tone for the Euro as it reached as high as 1.3067 during European trading on the back of the PMI composite and industrial new orders releases posted better than expected results. The April survey of business executives rose to 40.5 from 38.3 as both the manufacturing and service sectors rose. The forward looking gauge improved for a second month led by Germany the regions largest economy which saw its manufacturing reading rise to 35.0 from 32.4. Meanwhile, February industrial new orders fell by 0.6% which was far better than the 2.2% decline that was expected. A reversal in capital goods from -2.7% to 2.9% led the advancement. An improvement in French business confidence to 71 from 68 rounded out a day of improving data from the region.

Despite today's positive results, expectations are that the region's economy will continue to contract with the IMF forecasting a 4% decline in growth for 2009. Indeed, although the PMI reading improved it remained in contraction for the eleventh straight month. The ECB's measured approach to monetary policy is expected to prolong the current downturn and the reason that it will lag other developed nations in emerging from the crisis. Yet, committee member Jürgen Stark defended the central bank's actions stating that they have taken unprecedented steps to address the crisis and that he expects a gradual recovery next year. The EUR/USD has pushed back above the 50-Day SMA at 1.3043 which could lead to a test of the 100-Day SAM at 1.3211before another turn lower.

The pound rose to as high as 1.4596 during overnight trading as it was able to erase most of its losses form yesterday that followed the budget report as it finds support from improving risk appetite. Indeed, in his annual budget statement, UK Chancellor Darling forecasted that the treasury is expecting to borrow GBP606 billion by the 2013 fiscal year, which was an increase of GBP226 billion from last November's pre-budget report. He also announced an increase in taxes on Britons earning above 150,000 pounds to 50%. This only raised expectations that consumers will be facing increasing taxes going forward making future growth difficult to sustain. However, the Chancellor's expectation that growth will start to return by the end of 2009 despite the fact that he cut the growth forecast to -3.5% for the year could provide short-term sterling support.

The dollar has been under pressure during overnight trading as we have seen a pick up in risk appetite as Asian stock markets took their cue from the U.S rising over 1%. However, we haven't seen that sentiment carry through into European markets which are trading flat and have slowed greenback losses. Apple's better than expected results after the bell help build upon growing optimism and we could see that continue today if more companies report positive earnings. UPS and Microsoft highlight the schedule as earnings continue to garner traders focus. Initial jobless claims and existing home sales dot the economic calendar and both are expected to deteriorate from their prior readings. New claims are forecasted to rise to 639K which will keep traders cautious as markets are looking for the coincident indictor to start to show consistent improvement to validate that a bottom has been reached in the current downturn. Meanwhile, the 1.5% decline that is expected in existing home sales will end a trend of improving housing data and should also help to temper optimism. The weak fundamental data and corresponding earnings reports could bring back dollar support as traders come to the realization that the economy is still far from a recovery.

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To discuss this report contact John Rivera Currency Analyst: jrivera@fxcm.com