Euro dips as eurozone GDP expands

The euro is slightly lower on Tuesday. In the North American session, EUR/USD is trading at 1.0703, down 0.17%.

Eurozone GDP climbs, inflation dips

The eurozone economy expanded by 0.3% q/q in the first quarter, the highest rate since the third quarter of 2022. This follows a flat reading in Q4 2022 and beat the market estimate of 0.1%. On an annualized basis, the economy expanded 0.4%, up from 0.1% in Q4 2022 and above the market estimate of 0.2%.

In Germany, the largest economy in the eurozone, GDP rose 0.2% q/q in the first quarter, up from a revised -0.5% in the fourth quarter and higher than the market estimate of 0.1%. However, annually, the economy declined by 0.2% for a second straight quarter, indicating that the economy entered a technical recession.

Eurozone inflation dipped to 0.6% m/m in April, matching the forecast and down from 0.8% in March. Yearly, inflation was unchanged at 2.4%, matching the market estimate. Core inflation eased to 2.7%, down from 2.9% in March but higher than the market estimate of 2.6%.

The improvement in the eurozone GDP data and slight drop in inflation are unlikely to change the ECB’s plans to lower rates at the June meeting. What happens after that is uncertain. Some members of the Governing Council have urged up to three rate cuts this year but the data will have to cooperate if the ECB is to embark on a series of cuts.

The US will release key employment data later this week, starting with the ADP employment report. This release is not considered an accurate guide for nonfarm payrolls, but the ADP acceleration in March was repeated by nonfarm payrolls, which had a blowout gain of 303,000. ADP is expected to drop slightly to 179,000, down from 184,000 in March.

EUR/USD Technical

• There is resistance at 1.0756 and 1.0819
• There is support at 1.0690 and 1.0627

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