EUR/USD has edged lower on Wednesday, as the pair trades in the low 1.36-range in the European session. On the release front, French Consumer Spending and German Unemployment Change both weakened in April and fell short of expectations. On Tuesday, US CB Consumer Confidence posted another strong reading and beat the estimate. There are no US releases on Wednesday.
The US consumer continues to be optimistic, which is good news for the US recovery. On Tuesday, CB Consumer Confidence continued to look strong as the key indicator improved to 83.0 points in April, which was within expectations. This was the third straight reading above the 80-point level. US Manufacturing data was mixed, as Core Durable Goods Orders posted a paltry gain of 0.1%, while Durable Goods Orders easily beat the estimate with a 0.8% gain. The markets are keeping a close eye on Thursday's events, with the release of Preliminary GDP and the all-important Unemployment Claims.
Despite clear signals to the contrary, ECB head Mario Draghi has made a habit of shrugging off concerns about deflation in the Eurozone for months. That finally changed on Monday, when Draghi acknowledged that deflation was a serious issue and that the ECB stood ready to take action. This was another sign that the ECB seems serious about taking monetary action at its policy meeting next month. The monetary tools available to the ECB include a reduction in interest rates, asset purchases, or liquidity injections. Any one of these moves would likely have a strong impact on EUR/USD, which has lost ground since testing the 1.40 level earlier in May.
The week did not start well for the EU, as anti-EU parties posted stunning victories in European parliamentary elections held on Sunday. These "eurosceptic" parties posted strong gains across the continent, notably in France, the UK and Greece. With Eurozone countries suffering from weak growth and high unemployment, voters had a chance to lash back in the elections, and their frustration and anger was heard loud and clear at the ballot box. French Prime Minister Manuel Valls called the results an "earthquake" and the elections could weigh on the euro, although so far the currency has remained firm.
EUR/USD 1.3621 H: 1.3638 L: 1.3617
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