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EUR/USD risks falling to fresh 21-month lows on US-Eurozone macro data divergence

  • The shared currency fell yesterday as US data bettered estimates, while the Eurozone PMIs and inflation figures disappointed expectations.
  • The US-German yield differentials rose in the EUR-negative manner.
  • The recent low of 1.1176 could be put to test in Europe on growing macro data divergence. A deeper drop may be seen if the US durable goods orders figure for February blows past expectations.
EUR/USD fell to a 3.5-week low of 1.1197 in Asia and could print fresh 21-month lows below 1.1776 on growing US-Eurozone macro data divergence.

The Eurozone data released yesterday showed the cost of living, as measured by the consumer price index (CPI), rose to an annualized rate of 1.4 percent in March, missing the forecast of 1.5 percent. Further, factory activity contracted at a faster rate in March. IHS Markit’s March final manufacturing Purchasing Managers’ Index declined for an eighth month, printing at 47.5 from February’s 49.3, just below a flash estimate and its lowest reading since April 2013, according to Reuters.

Meanwhile, the US ISM manufacturing released yesterday showed the activity rebounded a bit more than expected in March. The index rose to 55.3 from the two-year low of 54.2 hit in February,  More importantly, the reading was slightly above expectations of 54.5.

The data divergence lifted the spread between the US and German 10-year government bond yields by six basis points to 253 basis points.

As a result, EUR/USD fell to 1.1204 yesterday and extended losses to 1.1197 during the Asian trading hours, invalidating the bearish exhaustion signaled by Friday's doji candle.

Hence, the March low of 1.1176 could soon come into play and could be breached lower in a convincing manner if the US data due today at 12:30 GMT shows corporate spending on durable goods ticked higher in February.

The EUR pairs could also take cues from the European Central Bank (ECB) Chief Economist Peter Praet's speech, due at 07:00 GMT, and the Eurozone February producer price inflation number, scheduled for release at 09:00 GMT.