Forex - Euro hits five-week highs vs. dollar

The euro rose to five-week highs against the dollar on Wednesday after data showed that the euro zone composite output purchasing managers’ index rose to its highest level in 18 months in July.

EUR/USD hit 1.3254 during European afternoon trade, the pair’s highest since June 21; the pair subsequently consolidated at 1.3245, gaining 0.16%.

The pair was likely to find support at 1.3162, Tuesday’s low and resistance at 1.3300, the high of June 20.

The euro was boosted after data showed that the euro zone composite PMI output index rose to 50.4 in the current month from 48.7 in June, on the back of stronger data from Germany and France. 

The data fuelled optimism that the bloc’s economy could emerge from a recession in the third quarter.

Germany’s manufacturing PMI rose to 50.3 from June's reading of 48.6, and the service sector PMI jumped to 52.5, from 50.4.

The French manufacturing PMI ticked up to a 17-month high of 49.8 from 48.4 in June, while France’s services PMI improved to 48.2 from 47.2 last month.

Earlier Wednesday, data showed that Chinese manufacturing activity slumped to an 11-month low in July, fuelling concerns over a slowdown in the world’s second largest economy.

The preliminary reading of China’s HSBC manufacturing PMI fell to 47.7 in July, from a final reading of 48.2 last month. Analysts had expected the index to rise to 48.6. A reading below 50 indicates a contraction.

The euro was rose to three-day highs against the pound, with EUR/GBPup 0.23% to 0.8621 and hit two-month highs against the yen, withEUR/JPY climbing 0.76% to 132.51.

Investors were looking ahead to U.S. data on new home sales later in the trading day, amid speculation over the timing of a possible withdrawal of the Federal Reserve’s bond buying program.

Fed Chairman Ben Bernanke said last week that the pace of the bank’s bond purchases would depend on U.S. economic health.