EURO EDGES LOWER DESPITE SOLID PMI AS DOLLAR STABILIZES

The euro nudged slightly lower on Wednesday, as the US dollar stabilized following Independence Day.

The common currency tumbled even as regional PMI and retail sales data beat estimates. The Eurozone composite purchasing managers’ index (PMI), which tracks the performance of manufacturing and services industries, rose to 56.3 in June from 55.7 the previous month.

Germany’s composite PMI accelerated to 56.4 from 56.1. In Italy, the composite index added 0.3 point to 56.6.

On the PMI scale, anything above 50 signals expansion.

Meanwhile, Eurozone retail sales rose 0.4% in May, pointing to a rebounding consumer segment. Compared to May 2016, retail sales rose 2.6%, official data showed.

Analysts in a median estimate had forecast sales to rise 0.3% compared to April and 2.3% annually.

China’s services sector weakened unexpectedly last month, raising fresh worries about a broad slowdown in the world’s second-largest economy. The Caixin China services manufacturing purchasing managers’ index (PMI) slipped to 51.6 in June from 52.8 the previous month. Any PMI above 50 signals expansion in economic activity.

“Even though the impact of slowing expansion in China’s services sector was cushioned by a slight rebound in manufacturing activity, the downward trend in the economy remains entrenched,” Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said in an official statement accompanying the release.

The Australian dollar, which is highly sensitive to Chinese economic data, stabilized on Wednesday following back-to-back declines.

The US dollar also rose against a basket of world currencies, as traders returned from the Independence Day holiday. The dollar index (DXY) climbed 0.2% to 96.37.

A stronger dollar pressured commodities, with crude prices edging lower ahead of North American trade.

EUR/USD

The euro edged lower in narrow trading on Wednesday, as investors continued to evaluate the latest PMI data against a backdrop of other market developments. Market participants will likely take their cues from forthcoming US jobs data, which may induce heavy volatility for the EUR/USD pair. The common currency continues to trade around 100 pips below last week’s 14-month high. Although momentum has slowed, the general outlook remains favourable.

AUD/USD

The Aussie was back above the 0.7600 handle on Wednesday but is nearly 100 pips below last week’s swing high. The short-term outlook is expected to be choppy, as traders continue to evaluate a volatile US currency. Longer term, however, the AUD/USD could be poised for bigger upside. A return to 0.7700 levels could expose the Australian dollar to further gains north of 0.7750.

Brent Crude

Crude oil was in reversal mode on Wednesday, the first sign that the prolonged rally had finally reached its breaking point. Brent crude futures touched a session low of $48.72 before consolidating above the $49.00 a barrel mark. Prices were still down 1% ahead of North American trade. Crude’s fundamental outlook remains tilted to the downside amid persistent oversupply fears. This was firmly on display last month after OPEC members Nigeria and Libya announced higher production levels.