- Richard Barwell, senior economist at Royal Bank of Scotland Group Plc
The rally is over? With vast majority of traders pending orders suggesting that the single currency will depreciate against the greenback and disappointing data from Europe, the rally on EUR/USD may begin to wane soon, with the pair easing back to 1.36.
In the first half of the week there were no relevant exchange rate moves in EUR/USD. On Wednesday only industrial output from Europe was on the agenda. While analysts had believed the figure could surprised markets to the upside, with an expected rise of 1%, the final reading came at a contraction of 0.2% in January. Nevertheless, this is an improvement from December's downwardly revised 0.4% slump. On a yearly basis, output advanced 2.1%, outpacing markets' expectations for a 1.9% growth. A release of this indicator tends to have muted market impact, as both Germany and France– Europe's two largest economies, are making around 50% of the whole output and have already published their readings. The overall output, however, is a key indicator of economic health in the 18-nation bloc, as production is highly correlated with consumer conditions such as employment and wages.
With stubbornly high unemployment in many countries like Spain and Greece, a pickup in manufacturing is unlikely to happen. Earlier this month the final manufacturing PMI fell to 53.2, decelerating from 54.0 recorded in the prior month.
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