EUR Back to 1.2000 on Solid EZ Growth

Market Drivers September 22, 2017
EZ PMIs beat
USDJPY below 112.00 on NK concerns
Nikkei -0.25% Dax -0.04%
Oil $50/bbl
Gold $1296/oz.

Europe and Asia:
EZ Composite PMI 56.7 vs. 55.5

North America:
CAD Retail Sales 8:30
CAD CPI 8:30

The euro popped the 1.2000 barrier again in morning European dealing as PMI data revealed that Q3 activity grew at the fastest pace in 6 years.

Less than 48 hours after selling off on hawkish FOMC comments, the euro was back to form again and once again flirting with the 1.2000 figure as data from the region continues to show that growth in the EZ is improving.

According to the latest Markit PMI readings the Flash composite PMI printed at 56.7 versus 55.7 in August hitting its highest level since May. Markit noted that "Growth accelerated in both manufacturing and services, albeit with the former continuing to lead the expansion. While service sector activity showed the largest rise since May, the increase in manufacturing output was the greatest since April 2011. The outperformance of manufacturing relative to services also increased to the widest since January 2014."

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: "The eurozone economy ended the summer with a burst of activity, with the PMI signaling renewed impetus to already-impressive rates of growth of output, order books and employment during September. The survey data point to 0.7% GDP growth for the third quarter, with accelerating momentum boding well for a buoyant end to the year."

The growth in the region suggests that ECB will likely move to taper its QE program before the end of the year, joining the Fed in moving towards monetary normalization. So far, the strength in the euro has had no discernable impact on demand and therefore should not keep ECB from tightening policy sooner rather than later.

Euro remains remarkably resistant in the wake of hawkish tilt by the FOMC and if it can remain bid around these levels for the next several days, it could make another run at multi-year highs and squeeze out late shorts as market sentiment towards the pair continues to be highly constructive.

There is no US data in North American session, but traders will look up North at Canadian CPI and Retail Sales data. The loonie appears to have completed its correction against the buck with USDCAD topping out at 1.2000 as the currency got a boost from $50/bbl oil. Today the forecast is for slightly lower Retail Sales but hotter CPI which is projected to print at 0.2%. If the inflation number beats or meets expectations the news could send USDCAD back towards the 1.2200 figure as traders will begin to price in further tightening from BOC.