EUR/USD pares losses as eurozone reports better Q1 GDP than expected

The EUR/USD pair declined by more than 0.30% as investors reacted to weak trade data from Germany and better-than-expected GDP data from the eurozone.

EUR/USD reacts to eurozone GDP data

The eurozone economy contracted by 3.6% in the first quarter because of the coronavirus pandemic. It declined by 3.1% on a QoQ basis, according to the second projection by Eurostat. The office said that this was the worst contraction recorded since records started in 1965.

Europe is still one of the worst-affected countries by the pandemic. Its countries, including Italy, Spain, and France have lost more than 70,000 people to the disease.

The contraction was widespread among most countries in the bloc. France, Italy, Spain, and Slovakia were the worst-affected countries, with their GDP contracted by more than 5%. They were followed by Portugal, Estonia, Belgium, and Czech Republic.

On the other hand, the best-performers in the region were Ireland, Romania, Bulgaria, and Sweden. Ireland’s economy expanded by more than 1%.

Biggest contributors to EU recession

The overall contraction of the economy was mostly due to household expenditure, which declined by 4.7%. This number is usually important because it plays a significant role in the overall economy. At the same time, fixed capital investment and exports declined by 4.3% and 4.2%.

Exports continued to weaken in the second quarter, if data from Germany is to go by. According to the German statistics office, exports declined by a whopping 24% while imports declined by 16.5% in April. Exports to France and Italy slumped by 48% and 40% respectively. Other countries have continued to report weak trade numbers, signalling that the second quarter will be worse.

Data from Eurostat showed that trade, transport, and accommodation were the biggest contributors to the contraction. Arts, entertainment and agriculture also contributed. Analysts were expecting this because most people were staying indoors in the last part of the first quarter.

Meanwhile, the EUR/USD pair also reacted to the weak growth in employment in the region. The number of employed people fell by 0.2%, with Spain, Bulgaria, and Portugal being the worst affected.

A ray of hope for the eurozone

There are hopes for the EUR/USD pair. First, recent manufacturing and services PMIdata have shown that the region has started to grow.

Second, the European Central Bank (ECB) has committed to keep interest rates low and boost its quantitative easingprogram. In a statement yesterday, Christine Lagarde said:

“The decision to expand the pandemic emergency purchase program will prove to have been essential in avoiding an even deeper recession and in quickening our pathway to normalization.”

Finally, there are signs that the European parliament will pass the $826 billion recoveryfunding. In a statement, Denmark said that it would ease its stance on the funding. Previously, the country was in a group, christened as “frugal four” who were rejecting the idea of giving grants to countries.

EUR/USD technical outlook

Last week, the EUR/USD pair was in a strong upward trend, buoyed by a weaker dollar and eurozone’s recovery. This week, the pair has declined from a high of 1.1382 to today’s intraday low of 1.1242. On the daily chart, the price is below the 78.2% Fibonacci retracement and above the 100-day and 50-day exponential moving averages. The pair may continue falling as bears attempt to target the 61.8% Fibonacci retracement level at 1.1168.