EUR/USD loses ground on improved US economy outlook

The euro declined against the US dollar on Friday, after recent upbeat US data reinforced speculation for further Fed tapering.

Having reached a session low at 1.3629 at 09:10 GMT, the pairs lowest since December 20th, EUR/USD consolidated at 1.3634, losing 0.27% for the day. Support was likely to be received at December 20th low 1.3625, while resistance was to be encountered at January 2nd high, 1.3775.

The greenback remained supported after the Federal Reserve Bank said on December 18th that it plans to reduce its monthly bond purchases in January to $75 billion from $85 billion, while also reinforcing its position that the benchmark interest rate will remain low for an extended period of time. According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program, which tends to devalue the US currency, in December 2014

The US Department of Labor reported yesterday that the number of people, who filed for unemployment assistance during the week ended December 28th, dropped to 339 000 from the upwardly revised 341 000 in the preceding week. Analysts had projected that the number of initial jobless claims will increase to 342 000.

Also, according to data by the Institute for Supply Management (ISM), US companies operating in the sector of manufacturing increased their activity at a weaker, but still steady rate in December compared to November. The corresponding index, gauging the performance of manufacturing sector in the country, came in at a value of 57.0 in December, down from 57.3 in the previous month, which was also the highest level of the index in 2.5 years. Analysts had forecast that the manufacturing PMI will demonstrate a larger drop in December, to 56.9. Values above the key level of 50.0 are indicative of expansion in the sector.

Fed Chairman Ben Bernanke is scheduled to take a statement later today at an economics conference in Philadelphia, alongside Philadelphia Fed President Charles Plosser.

Meanwhile, a report by the Spanish Ministry of Labor, revealed on Friday that the number of unemployed people in the country fell by 107 570 in December, the biggest decline since June. The data defied analysts projections, which pointed to an increase of 24 300 in unemployment last month. In November the number of unemployed people in Spain decreased by mere 2 475 people. The report showed that the Spanish labor market started recovering, fueling optimism that the economy is gaining momentum.

Yesterday, the market research group, Markit Economics released a report that showed the Spanish Manufacturing PMI rose to 50.8 in December, beating analysts’ projections of 49.9 reading. In November the Manufacturing PMI stood at 48.6.

Elsewhere, AUD/USD climbed to a session high at 0.8993 at 5:05 GMT, also the pair’s highest point since December 12th, after which consolidation followed at 0.8970, rising 0.66% for the day. Support was likely to be found at January 2nd low, 0.8843, while resistance was to be encountered at December 12th high, 0.9082. The pair was set to record a 1.1% weekly gain, or the most significant advance since the week through October 18th.