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EUR/USD at Risk

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EUR/USD at Risk

The EURUSD risks another test of key supports, as the markets react to upbeat economic data from the United States against a backdrop of speculation the European Central Bank is prepared to unveil a stimulus package next month.

The pair fell to a daily low of 1.3685. In the early North American session the pair was trading at 1.3712, unchanged from the previous close. The daily chart shows initial support at 1.3637, followed by 1.3602. On the upside, technical resistance is likely found at 1.3722, followed by 1.3756.

The EURUSD tested the downside Thursday after Eurozone growth data disappointed the markets. The Eurozone economy expanded 0.2 percent in the first quarter, half the rate economists forecast, the European Commission reported. Year-on-year, the economy expanded at a rate of 0.9 percent.

Eurozone gross domestic product was dragged down by disappointing readings from France and Italy, the region’s second and third largest economies, respectively. French GDP growth was flat in Q1, while Italy contracted at a quarterly rate of 0.1 percent.

Germany’s growth pace accelerated 0.8 percent in the first three months of the year, double the rate of the previous quarter. Year-on-year, German GDP increased 2.5 percent, following an annual gain of 1.3 percent the previous quarter.

The pair managed to end the previous session on a rebound as global risk sentiment waned, leading to a sharp decline in US and European bond yields that hurt the dollar more than the euro.

On Friday, investors were reacting to several pieces of key data from the United States. US building permits rose 8 percent to a seasonally adjusted annual rate of 1.08 million, the Commerce Department reported today in Washington. Housing starts surged 13.2 percent to a seasonally adjusted annual rate of 1.072 million.

The figures suggest the housing sector was rebounding from its winter lows, a pivotal sign for investors looking to gauge the pace of US recovery.

Strong economic data, especially on the consumer side, could put more pressure on the Federal Reserve to normalize monetary policy. The Fed’s outlook on a monetary policy remains purposely vague, as policymakers seek to taper rate-hike expectations.

In Europe, the path of monetary policy is becoming clearer, as the European Central Bank appears ready to loosen monetary policy further to overcome low inflation and stimulate growth. In a speech in Berlin on Thursday ECB Vice President Vitor Constancio said the central bank is ready to act quickly.

“We are determined to act swiftly if required and don’t rule out further monetary policy easing,” Constancio said.

Constancio said he expects Eurozone inflation to remain low for a prolonged period, suggesting the central bank is prepared to act at the June policy meetings.

On Thursday the European Commission confirmed consumer inflation increased at a monthly rate of 0.2 in April. Compared to the previous 12 months, consumer inflation was up 0.7 percent, in line with the initial estimate.

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