Supported by Economic Data, EURUSD Cautious Ahead Of Yellen’s Speech

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Supported by Economic Data, EURUSD Cautious Ahead Of Yellen’s Speech

The Euro was flat on Tuesday versus the U.S dollar after early advances during the Asian session. The EURUSD had been helped by German and Eurozone PMI data for the Manufacturing and Service sectors that pointed towards a surprise expansion in France’s private sector. The advance was short lived though and EURUSD declined after news reported robust housing market conditions in the US and rising crude prices.

The single currency received moderate support after the Markit Eurozone PMI readings for August came out without surprising the markets. Most of the results were above 50, little changed compared to July's readings and close to previous forecasts. This helped extend the optimistic sentiment over the performance of the EU economy with a second month of relatively positive data post Brexit. Above all, France's private sector accelerated to levels of activity last seen before the November militant attacks in Paris.

In the U.S, the Commerce​​ Department reported that new U.S. single-family home sales unexpectedly rose 12.4% in July to a seasonally adjusted annual rate of 654,000 units. Sales were up 31.3 percent from a year ago, easily beating forecasts of a reading of 581,000 from economists.​​ Last month’s figures reached their highest level since October 2007 as demand increased broadly while builders picked up the pace of construction, brightening the housing market – one of the pillars of the U.S economy.

Meanwhile, crude oil ascended strongly following Reuters’ reports that Iran may support joint action to prop up the oil market. According to sources in the OPEC, the cartel’s third-largest producer is showing more willingness to reach an output freeze agreement with other oil producers after​​ indirectly scuttling the previous attempt in April's Doha talks. The news has helped fuel the prospect of a tightening in the crude market and higher oil prices in the future, which is an important factor for boosting U.S inflation towards the central bank’s 2 percent target.

Higher possibility of a rate hike by the end of this year is priced in but investors are being cautious ahead of Fed Chair Janet Yellen’s speech this Friday. Hawkish comments will take the dollar higher while a dovish tone may knock the greenback down.

Fig: EURUSD Technical Chart

EURUSD has already broken above the downtrend line but is now trading sideways under the 23.6% retracement level. The price action has crossed through the two moving averages from below, and the short-term MA​​ has crossed over the long-term MA from below. However, an overbought market ahead of the big news has traders​​ cautious, and put some investors out to the sidelines. The indecisive moves may continue until the end of the week before a potentially sharp move.

Trade suggestion

Sell Limit at 1.13300, Take profit at 1.13050, Stop loss at 1.13500

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