Forex Market Update: EUR/USD Tips Lower in European Trading

EUR/USD found support after losing nearly 75 pips since the European open. Demand from an Asian central bank has underpinned ahead of 1.3900 after safe haven flows triggered broad interest for JPY and USD in early Europe. The market reacted to more missile tests from North Korea and a negative article on German toxic debt, although note this is not a new development and may be shrugged off by market participants. Euro-Zone data released so far on the session included German Q1 GDP, which was confirmed at -3.8% q/q and -6.9% y/y wda. The German May GfK was stable at 2.5, while April import prices fell 0.8% m/m, which was much weaker than expected. Elsewhere, French spending of manufactured goods rose 0.7% m/m in April. There is feeling that the EUR-USD pull back could extend to 1.3890 lows from last Friday after daily studies indicated heavily overbought levels after it traded above 1.4000. A breach of last Friday’s low could open up the 1.3850 area, but more buying interest is anticipated as the global recovery scenario remains the dominate market theme. At the same time, the Euro-Zone posted a March seasonally adjusted current account deficit of EUR 6.5 bln, up from a deficit of EUR 7.8 bln in the previous month. The goods balance declined to EUR 1.6 bln from EUR 0.4 bln, but the income balance swung into black and posted a surplus of EUR 0.8 bln, after a deficit of EUR 3.5 bln in the previous month. Unadjusted BoP data showed direct and portfolio investment inflows of EUR 71.1 bln, with direct investment outflows of EUR 24.7bln and portfolio investment inflows of EUR 95.8 bln. Combined direct and portfolio investment inflows amounted to EUR 266.7 bln in Q1, compared to outflows of EUR 18.8 bln in Q1 last year.