Forex - EUR/USD pushes higher, gains capped

The euro pushed higher against the dollar on Thursday but gains were capped after the Federal Reserve indicated that it may taper its bond buying program, bolstering safe haven demand.

EUR/USD hit 1.2905 during European afternoon trade, the session high; the pair subsequently consolidated at 1.2884, gaining 0.21%.

The pair was likely to find support at 1.2820, the session low and resistance at 1.2932, Tuesday’s high.

The euro found support after data showed that manufacturing and service sectors activity in the euro zone improved more-than-expected in May.

The euro zone manufacturing purchasing managers’ index rose to 47.8 from a final reading of 46.7 in April, better than expectations for a reading of 47.0, but still well below the 50 level that separates growth from contraction.

The euro zone services PMI rose to 47.5 from 47.0 in April, above expectations for a reading of 47.2. 

Germany’s manufacturing PMI rose to a two month high 49.0 from 48.1 in April.

Earlier Thursday, data showed that China’s manufacturing sector contracted for the first time in seven months in May. The preliminary reading of China’s HSBC manufacturing PMI fell to 49.6 in May, from a final reading of 50.4 in April.

Safe haven demand for the dollar continued to be underpinned after Fed Chairman Ben Bernanke said Wednesday the bank could begin tapering its bond-buying program in the "next few meetings”.

In testimony to the U.S. Joint Economic Committee on Wednesday, Bernanke said a decision to scale back the Fed’s asset purchase program could be taken in the "next few meetings" depending on economic data.

The euro was sharply lower against the yen, with EUR/JPY tumbling 1.22% to 130.98.

The U.S. was to publish data on initial jobless claims and new home sales later in the global day.