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EUR/USD Edges Higher Ahead of ECB Meeting

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EUR/USD Edges Higher Ahead of ECB Meeting

The US dollar advanced against the euro Wednesday, as the EURUSD fell back below the 200-day moving average ahead of a potentially landmark rate decision from the European Central Bank.

The EURUSD declined 0.18 percent to 1.3603 after trading sideways in the European session. The daily chart shows initial support at 1.3593 and resistance at 1.3655.

The pair fell back below the 200-day moving average after clawing back to that level on Tuesday. Price action is likely to remain subdued leading up to the European Central Bank rate decision on Thursday.

In economic data, Eurozone GDP growth was confirmed at 0.9 annually in the first quarter, in line with forecasts. Contraction in Italy and stagnation in France kept the Eurozone economy subdued in the first quarter, despite a strong performance from Germany.

Industry data showed the Eurozone service economy improved in April, led once again by Germany. Markit Group’s gauge of Eurozone service activity increased from 53.1 to 53.2. Economists forecast an increase to 53.5.

The composite PMI index, which covers manufacturing and services, fell from 54.0 to 53.5.

Markit said the Eurozone economy is on course for its best quarterly performance in three years, as recoveries in Germany, Italy and Spain offset persistent weakness in France, which fell back into contraction last month.

In Germany, service activity increased at the fastest pace in nearly three years, Markit data showed.

In US data, a strong service economy was confirmed by both the Institute for Supply Management and Markit. Markit’s gauge advanced 3.1 percentage points to 58.1, while ISM’s non-manufacturing PMI index increased 1.1 percentage points to 56.3.

The ISM reported noted expansion in 17 of the 18 non-manufacturing sectors, led by construction, wholesale trade, and management of companies & support services. Service employment increased steadily last month, although only half of the 18 sub-sectors reported increased payrolls.

A separate report from the ADP Institute showed the US economy added only 179,000 private payrolls in May, well below estimates calling for 210,000. ADP reported weaker payroll gains in business and professional services.

The ADP report comes just days before the Labor Department is scheduled to provide official payroll estimates for the month of May. Economists expect the official report to show US businesses added 218,000 jobs last month.

Price action for the EURUSD is likely to resume Thursday, as the markets brace for an important rate announcement from the ECB. The central bank is expected to introduce some form of added stimulus into the Eurozone in an effort to scale back the impact of deflation. May marked the eighth consecutive month Eurozone inflation was in what ECB President Mario Draghi describes as the “danger zone” of below 1 percent.

The ECB is reportedly considering a negative deposit rate and conditional liquidity provision to combat deflation. The markets appear certain the ECB will act, although the precise tactics officials will use is still up for debate.

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