With the start of a new week, optimism dominated markets after European leaders found common grounds to come up with a plan to tackle the debt crisis, while European finance ministers agreed to provide Greece with the European Union part of the sixth tranche of 2010's bailout package; however downbeat fundamentals from the euro area eased the optimism and supported the demand for low yielding currencies.
The U.S. dollar index (USDIX), which tracks the dollar's movement against a basket of foreign currencies, started the day at 76.45, and recorded a high of 76.54 after reaching a low of 76.04, and is currently hovering around 76.48.
The euro reversed to the downside against the U.S. dollar after the euro area manufacturing and services sectors contracted further in October, where the debt crisis and the slowdown seen across the globe have pressured the performance of these sectors.
The euro area released the PMI manufacturing, services and composite for October, showing that the manufacturing sector contracted beyond expectations to 47.3 from 48.5, while the services sector slipped further to 47.2 from 48.8, and accordingly the PMI composite index dropped to 47.2 from, 49.1.
By looking into further details, we can see that German manufacturing sector contracted in October to 48.9 from 50.3, adding more pressures on the composite index to drop further, noting the Germany is the largest economy within the euro-area.
On the other hand, the services sector of the second largest economy inside the zone also contracted more than expected in October, where the French services sector dropped to 46.0 from 51.5, cutting the improvement seen in the German services sector, yet the French manufacturing sector improved slightly opposing the German one.
With lack of fundamentals from the world's largest economy today, Europe remains the main focus after European leaders have finally found common grounds to develop a strong plan to tackle the debt crisis and recapitalize bank, where after they split over the mechanism of implementing the European Financial Stability Facility and the role of the European Central Bank, they committed to announce steps on Wednesday summit to ease jitters and quell debt woes.
The euro appreciated against the U.S. dollar after the opening in the Asian session at 1.3843 to set the highest at 1.3952; however, the EUR/USD pair reversed sharply to the downside after the release of heavy fundamentals reaching the lowest at 1.3822, while the pair trades now around 1.3835.
Technically, the pair is expected to extend the upside movement towards 1.4010 as long as the pair is stable above the critical level of 1.3825, noting that the trading range for this week is among the major support at 1.3515 and the major resistance at 1.4105.
Furthermore, the sterling pound is mainly affected by the economic conditions seen in the euro-area, where the pound appreciated against the U.S. dollar as the euro gained strength; however, the downbeat fundamentals from the euro-area has affected demand for high yielding currencies including the royal currency, which retreated after reaching a high of 1.6000 to a low of 1.5917, noting that the GBP/USD pair opened this week at 1.5930 and is trading now around 1.5924.
To summarize currencies' movements against the U.S. dollar, the USD/JPY pair declined as investors tend to hold low yielding currencies, while dollar advanced against the Swiss franc, yet lost strength against the Canadian dollar.