Analysis and Recommendations:
The EUR/USD eased by 7 points after lackluster Services PMI releases. The eurozone GDP met expectations. The US dollar climbed to trade above the 80.60 level ahead of today’s beige book release. Traders are sitting tight waiting for the ECB rate decision due tomorrow afternoon. The euro is trading at 1.3621. Investors were already beginning to move to the sidelines before Thursday’s ECB meeting, where expectations are intense that the bank will respond to the euro zone’s low inflation and sluggish growth with an aggressive set of easing measures. Euro-area economic growth slowed to start the year, keeping pressure on the European Central Bank to act as soon as tomorrow to spur the fragile recovery and spark prices. Euro-area services output expanded at the strongest pace in almost three years last month, helping create jobs in a region suffering from low inflation, anemic growth and unemployment close to a record high.
Gross domestic product in the 18-nation currency bloc increased 0.2 percent in the first quarter, down from a revised 0.3 percent gain in the previous three months, the European Union’s statistics office in Luxembourg said today. The first-quarter reading confirmed Eurostat’s initial estimate.
The euro sagged 0.1 percent to about $1.3611 in early trading, while shares steadied and the region’s main bond markets clawed back some of the ground they had conceded on Tuesday following the rise in U.S. rates. Figures on Tuesday showed euro zone inflation slowed further in May, all but sealing the case for the ECB to carry out its promise to act when it meets on Thursday.
Sources at the ECB told Reuters last month the bank was preparing a package of policy options, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.
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