Investing.com -- EUR/USD surged on Tuesday extending gains from the previous two sessions, as China roiled global equity markets with weak manufacturing data in August exacerbating fears of a recession in the world's second largest economy.
The currency pair wavered between a low of 1.1208 and a high of 1.1332 before settling at 1.1314, up 0.0101 or 0.90% on the session. The euro closed above 1.13 against the dollar for the first time in five sessions. Before its current three-session winning streak, the euro had closed lower against the dollar in five of the prior six trading days. The euro is now up against its American counterpart by approximately 3% over the last month of trading.
EUR/USD likely gained support at 1.0876, the low from August 4 and was met with resistance at 1.1713, the high from Aug. 24.
In overnight trading, China's official manufacturing purchasing index (PMI) slumped to a three-year low in August, falling to 49.7 from a reading of 50 in July. Any reading below 50 typically provides an indication that the sector is on the verge of suffering a recession. Separately, Caixin's index of smaller factories in China plunged to a six-year low of 47.3 in August from 47.8 in July.
The world's second largest economy is on pace for its slowest expansion in nearly a decade, amid sharp decreases in exports and structural shifts in its productivity, capital and workforce. The reading rattled equity markets throughout the euro zone, as the U.K.'s FTSE 100, the German DAX and the French CAC all fell by more than 2.3%.
The spillover also reached the U.S., as all three major indices lost more than 2.75% on Tuesday to extend last week's massive sell-off.
Also on Tuesday, Christine Lagarde, the head of the International Monetary Fund, expressed significant concern with the steep transition the Chinese economy faces in the coming months in her first public comments since the People's Bank of China sparked a global sell-off early last week. Speaking in Jakarta, Lagarde cautioned investors on the spillover effects that could be created from persisting weakness in China's economy.
"As the Chinese economy is adjusting to a new growth model, growth is slowing—but not sharply, and not unexpectedly. The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy," Lagarde said.
Currency traders await a highly-anticipated meeting of the European Central Bank's governing council on Thursday for further indications on the long-term success of the ECB's ambitious quantitative easing program, which was launched in the winter. Over the last eight months, the euro is relatively flat against the dollar – up by 0.76% since February 1.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by 0.55% to close at 95.32. The index has closed lower in three straight sessions.