The EUR/USD exchange rate is slightly below USD 1.20 before the publication of inflation data and PMIs from the euro area and before the speeches of several members of the European Central Bank. The dollar index has fallen to its lowest level in two years and the risk appetite seems to be rising after the manufacturing PMI in China was better than expected.
China's highest growth in 9 years
Caixin China General Manufacturing PMI rose unexpectedly to 53.1pts in August from 52.8 pts in the previous month. The market consensus was 52.6 pts. This was the fourth consecutive month of growth in the manufacturing sector and the highest growth since early 2011.
The reading indicates that the economic recovery after the COVID-19 crisis was very strong and, most importantly, sustained. Both production and new orders grew faster and export sales rose for the first time this year. Purchasing activity has also increased in a more stable demand environment.
India a new centre of the pandemic?
Information from China overshadowed what is happening in the USA, where the number of coronavirus cases exceeded 6 million and the epidemic was accelerating on campuses among students. The states of Arizona, California, and Florida, in turn, have shown a daily decrease in new infections.
Meanwhile, India is rapidly becoming the new global epicenter of the virus after a record increase in the number of cases, and experts predict that it will soon overtake Brazil and, after that, the US. And that is where the biggest epidemic in the world will be.
What is behind the rise in the EUR/USD exchange rate
The EUR/USD pair has been at the highest level for over 2 years. In the area of 1.2000 some speculative long positions may be closed, say traders quoted by Bloomberg. The price reversal could be a result of potential profit-taking and could be stronger due to record-breaking positioning and maintaining huge amounts of long positions on euro futures, CFTC data show. It is also said that today's inflation and PMI data may be key, which could be the trigger for a possible correction on the EUR/USD pair.
On the one hand, the recent strong appreciation of the EUR/USD exchange rate seems to have been underpinned by broad weakness of the dollar, but for the most part, this may be due to real demand for the euro, as the euro area has the largest current account surplus in the world.
The PMI for the euro area will be published at 10 a.m. and inflation figures will be presented at 11 a.m.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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