While the euro was down 1 percent against the US dollar, the currency actually gained more than 1 percent against the Australian dollar and Canadian dollar, and also surged over 2 percent versus the New Zealand dollar. Nevertheless, most were watching the EUR/USD reversal from 1.4330, especially as daily RSI came down from overbought levels, signaling a turn. Meanwhile, Eurostat reported that Euro-zone GDP figures for Q1 proved to be worse than expected as the annualized rate was revised down to -4.8 percent from -4.6 percent, though the quarterly rate held at -2.5 percent. A breakdown shows that household spending contracted 0.5 percent during Q1, gross fixed capital formation plunged 4.2 percent, government spending stagnated, exports plummeted 8.1 percent, and imports fell 7.2 percent. Adding to evidence of lackluster growth, Markit Economics released their composite Purchasing Managers’ Index (PMI) for the Euro-zone’s manufacturing and services sector. While composite PMI did rise to 44.0 in May from 41.1, readings below 50 still signal a slowing in business activity, suggesting that the contraction in the Euro-zone economy may not be accelerating, but it remains far from recovery mode.
On Thursday, the European Central Bank (ECB) will likely leave rates unchanged at 1.00 percent. However, where the currency ends the day may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Indeed, in May the ECB announced that they would buy 60 billion euros worth of covered bonds issued in the Euro-zone, but that details wouldn’t be released until after this upcoming meeting. As a result, much attention will be paid to which bonds will be bought and how the ECB plans on going about buying them, as direct buying from issuers would effectively supply them with direct funding, whereas the purchase of existing covered bonds would support prices and drive down yields.
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