EUR/USD dips below 1.10 after weak German GDP, inflation next

• German and eurozone GDP slowed and missed the estimates
• Markets await US Core PCE Price Index, German CPI

EUR/USD is trading at 1.0983 in the European session, down 0.39% on the day

German CPI expected to remain steady

The trading week wraps up with key inflation releases on both sides of the pond. Germany, the bellwether of the eurozone, releases CPI later today. The markets are expecting the April release to stay unchanged at 7.8% y/y. On a monthly basis, CPI is expected to slow to 0.8%, down from 1.1%. The release takes on added significance as the ECB holds a policy meeting on May 4^th. The ECB is expected to remain aggressive and deliver a 50-basis point hike, but if today’s German data and eurozone CPI prior to the meeting are below expectations, then the odds of a 25-bp hike would likely increase.

Germany and the eurozone released first-quarter GDP today, and the data was soft. Germany’s economy improved to 0.0% q/q, better than the Q3 read of -0.4% but shy of the estimate of 0.2%. Eurozone GDP was negligible at 0.1%, following 0.0% in Q4 and missing the estimate of 0.2%. The disappointing numbers have pushed the euro lower today.

In the US, the markets are anxiously awaiting the Fed rate decision next week. There is a blackout in effect on Fed members making public remarks, which means that the markets are pricing rates largely on key economic releases leading up to the meeting. Today, the US releases Core PCE Price Index, which is considered the Fed’s favorite inflation gauge. The markets expect the index to stay unchanged in March at 0.3% m/m, and any surprises could move the dial on the US dollar as well as the pricing of a rate hike. Investors will also be keeping an eye on Personal Spending and Income, which provide a snapshot of the strength of consumer spending. According to Fed Watch, the likelihood of a 25-bp hike is 88%, with a 12% chance of a pause.

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EUR/USD Technical

• EUR/USD continues to test support at 1.1023. Below, 1.0966 is under pressure
• There is resistance at 1.1176 and 1.1423

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