Forex: EUR/USD closes below 1.3000 as German PMI data disappoints

FXstreet.com (Barcelona) - The EUR/USD was unable to hold the 1.3000 support pivot after the German PMI print (47.9 actual vs. 49.0 est.) came in below expectations. The correlation between the EUR/USD and stocks continues to decrease as both US and European equities shrugged off the data and finished the session sharply higher.

According to Tim Davis, Global Strategist at TD Securities, “Market expectations of an ECB rate cut increased following the weaker than expected German numbers. We continue to expect the ECB’s next couple of decisions to remain on a knife edge and expect that following today’s data, there continues to be around a 40-45% chance of an ECB rate cut next month.”

He went on to comment, “European equity markets are higher on the prospects of a cut, while EUR/USD has weakened back below 1.30. Both peripheral European bond spreads and semi-core spreads have continued to tighten. We think prospects for an ECB rate cut in May still hinge critically on the IFO tomorrow, and could then be confirmed by Governing Council member Asmussen, who is speaking on Thursday and Friday and said over the weekend that the decision continued to be data dependent.”

From a technical point of view, the close below 1.3000 is a negative development and the pair needs to establish ground back above the previous support pivots or could face further declines. According to Fan Yang, CMT of FXTimes, “At this point, a rally back above 1.3050 might neutralize this short-term bearish outlook and a rally above 1.3083 could reflect a revival of the bullish outlook, opening up at least the 1.32 high. While a bullish divergence with the RSI around 30 is not necessary for a reversal back to the April uptrend, it could help identify the end of the current bearish correction cycle.”