EUR/USD – Weak GDP Numbers Push Euro Lower

 | May 15, 2014 06:05AM ET

The euro has resumed its downward trend on Thursday. In the European session, the pair is trading in the mid-1.36 range, its lowest level since late February. The slumping euro has surrendered over 350 points since coming close the 1.40 line late last week. On the release front, German Preliminary GDP looked sharp, posting its highest gain in a year. However, Eurozone Flash GDP dipped in Q1. On the inflation front, eurozone Core CPI improved in April and matched the forecast. In the US, it's a packed schedule, with three major events - Core CPI, Unemployment Claims and the Philly Fed Manufacturing Index. As well, Federal Reserve chair Janet Yellen will speak at an event in Washington.

At last week's policy meeting, ECB President, Mario Draghi, said it would be comfortable taking monetary action in June. The markets jumped and the euro has been in a tailspin ever since. However, Draghi gave himself plenty of wiggle room, saying the ECB would take into account growth and inflation forecasts before making any moves. Eurozone Core CPI improved to 1.0% in April, up from 0.7% a month earlier. Eurozone CPI followed suit, as it improved to 0.7%, up from 05%. With both inflation indicators matching their estimates and pointing upwards, the ECB has some breathing room before having to take action. If upcoming inflation numbers meet expectations, we could see the ECB play it safe in June and remain on the sidelines yet again.

Eurozone GDP releases, the primary gauge of economic growth, were a mix on Thursday. German Preliminary GDP jumped 0.8% in Q1, its best showing since Q1 in 2013. This edged above the estimate of 0.7%. However, Eurozone Flash GDP failed to keep pace. The indicator dipped to 0.2%, short of the estimate of 0.3%. French and Italian GDP releases also disappointed, as both weakened in April and missed expectations.

Low inflation levels have also been a persistent problem in the US, and Fed chair Yellen highlighted this issue when speaking before Congress last week. Inflation levels are nowhere near the Fed's target of 2.0%, and weak inflation is a sign of an underperforming US economy. There was good news on Wednesday as PPI, a key inflation indicator, edged higher in April, coming in at 0.6%. This easily beat the estimate of 0.2%. Core PPI also beat the estimate, posting a gain of 0.5%.