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EUR/USD Under Pressure

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EUR/USD Under Pressure

The euro was on its heels again Wednesday, falling below the 1.36 US handle amid weaker than forecast French and German data.

The EURUSD was trading below 1.36 in the early North American session, declining 0.27 percent to 1.3598. The pair has lost more than 0.6 percent over the previous five days amid signs the European Central Bank is prepared to act decisively at next week’s policy meeting. The trend outlook is bearish, with initial support likely found at 1.3594. The trend line shows initial resistance at 1.3652.

In other trading, the EURGBP climbed 0.26 percent to 0.8132. Initial support is likely found at 0.8098 and resistance at 0.8153.

Data from the Eurozone’s biggest members disappointed the markets Wednesday, stroking fears the currency region could lose the very little momentum it had in the early part of the year.

French consumer spending unexpectedly declined in April, according to INSEE. Consumer spending declined 0.3 percent, following a gain of 0.6 percent the prior month. Economists forecast a gain of 0.3 percent in April.

In Germany, unemployment unexpectedly rose for the first time in six months, as the number of people out of work rose at a seasonally adjusted 24,000, the Federal Labour Agency reported today. Economists forecast a decline of 15,000. The unemployment rate was unchanged at 6.7 percent.

The unexpected drop raises concern the Eurozone’s fragile recovery may be under threat. As the engine of the currency region, Germany has been relied upon to kick-start recovery, which, it is hoped, will begin to slowly trickle to the periphery. The German economy expanded 0.8 percent in the first quarter, double the rate of the previous quarter. By contrast, the French economy stagnated and Italy contracted.

A separate report today from the European Commission showed consumer confidence in May rose to a more than six-year high. The headline indicator rose from -8.6 to -7.1, matching forecasts. This raises some hope that consumer spending in the 18-nation currency bloc could be on the rise.

Underlying the euro’s prevailing weakness is talk of another rate cut, which could be implemented at the next ECB policy meeting slated for June 5. Earlier this week ECB President Mario Draghi acknowledged the serious threat deflation poses to the currency region, signaling to the markets the central bank was finally prepared to act. While it is still unclear what tools the ECB will implement, any change to monetary policy is expected to have a big impact on euro pairs, especially the EUR/USD.

The ECB, which targets inflation at just below 2 percent, cut its benchmark interest rate to 0.25 percent in November in response to weak price growth. April marked the seventh consecutive month Eurozone inflation was below 1 percent.

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