Published: Wed, 29 Apr 2009 15:42:08 +0200

Euro Moves Higher Despite Weaker U.S. Economic Growth

(CEP News) - Weaker-than-expected U.S. first quarter economic growth is not having much impact on currency markets as the euro holds major gains against the greenback Wednesday morning.

EUR/USD climbed steadily higher through most of the session and is currently in the mid-1.32 USD level. The latest U.S. data has not provided any direction for the cross.

Recently, negative U.S. data has supported the U.S. dollar by boosting risk aversion sentiment. However, currency markets and equities shrugged off a stronger-than-expected drop in the preliminary estimate of first-quarter GDP.

Advance GDP contracted 6.1% against expectations of a 4.7% decline, while the previous quarter's 6.3% contraction was unrevised. The negative figure is the fifth decline in quarterly GDP since the credit crisis began in August 2007.

The euro moved higher following positive comments from European Central Bank Governing Council member Yves Mersch saying he sees "a little margin" for further rate cuts.

Sentiment in Europe is improving according to the Euro zone's April business climate index, which reached -3.33 versus an expected read of -3.58 and previous result of -3.49. At the same time, the economic confidence index rose to 67.2 versus an expected 65.6 level and the previous 64.7 reading.

Concerns over swine flu continue to make headlines, after a 23-month-old child from Texas was the first person to die of the flu in the U.S. The World Health Organization is also holding another emergency meeting and there is some speculation it could raise its pandemic threat level, which is currently at a four - two levels below a pandemic rating.

Jacqui Douglas, currency strategist from TD Securities, said some uncertainty over the FOMC rate decision later this afternoon could be helping to boost the euro in the short term. She added EUR/USD is finding strong support on dips, which could be bullish in the short term. She is expecting the cross to test resistance at 1.3339 USD.

Technical strategists from Citigroup are also bullish on the euro and are expecting further gains targeting a test of 1.37 USD in the medium term.

"Here in the short term we believe the correction down in EURUSD has come to an end and that we should focus again on the longer term charts which argue for gains ahead," they wrote in a note to clients.

All eyes will be on the FOMC interest rate decision, which will be released at 2:15 p.m. EDT, though many currency strategists are not expecting any major news from the Fed. Any positive comments on the economy could be U.S. dollar negative in the short term, they said.

Euro/USD up 0.94 cents to 1.3242

USD/CAD down 1.33 cents to 1.2063

USD/Yen up 0.43 points to 96.88

GBP/USD up 0.70 cents to 1.4705

AUD/USD up 1.14 cents to 0.7177

Euro/Yen up 1.46 points to 128.26

Euro/GBP up 0.19 pence to 0.9005

GBP/CAD down 0.99 cents to 1.7741

CAD/Yen up 1.20 points to 80.32

Euro/CAD down 0.62 cents to 1.5972

The U.S. Dollar Index is down 0.46 points to 84.70

All data taken at 9:39 a.m. EDT.

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca