Forex - EUR/USD hits session highs after euro zone PMI data

The euro rose to session highs against the dollar on Monday following the release of encouraging data on euro zone private sector activity, but gains were held in check ahead of this week’s Federal Reserve policy meeting.

EUR/USD hit highs of 1.3763, up from session lows of 1.3726 and was last up 0.16% to 1.3762.

The pair was likely to find support at 1.3708, Friday’s low and resistance at 1.3802, the high of December 12.

The euro found support after data showed that the euro zone’s composite output index rose to a three month high of 52.1 in December, from 51.7 in November, indicating that the recovery in the region is on track.

The euro zone’s manufacturing purchasing managers’ index rose to a 31 month high of 52.7 in December, from a final reading of 51.6 in November and above expectations for a reading of 51.9. 

However, the currency bloc’s services PMI ticked down to 51.0 from 51.2 in November, falling short of expectations for an uptick to 51.5.

Germany’s manufacturing PMI rose to a 30-month high of 54.2 in December, up from 52.7 in November and above expectations for a reading of 53.0.

The country’s services PMI ticked down to 54.0 this month from 55.7 in November, compared to expectations for a decline to 55.5.

A separate report showed that France’s manufacturing PMI fell to a seven month low of 47.1 from 48.4 in November, while the services PMI dropped to a six month low of 47.4 from 48.0 last month.

Investors remained cautious ahead of the outcome of the Fed’s upcoming policy meeting on Wednesday, with some expecting the bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Recent signs of improvement in the labor market and last week’s agreement on a two-year U.S. budget deal were seen as removing obstacles to the winding back of monetary stimulus. 

But with the inflation outlook remaining subdued the Fed may prefer to hold off on tapering stimulus measures until it sees more indications that the recovery is self-sustaining.

Elsewhere, the euro trimmed losses against the yen, with EUR/JPY last down just 0.02% to 141.80, up from session lows of 141.23.