The EUR/USD was back on the defensive Friday, giving up the previous session’s gains after government data showed an unexpected slowdown in Eurozone growth.
The Eurozone economy expanded just 0.3% in the third quarter, down from 0.4% in the April to June period, Eurostat reported Friday. A median estimate of economists forecast a gain of 0.4%. In annualized terms, Eurozone GDP expanded 1.6%, slightly below forecasts calling for 1.7%.
Growth slowed throughout the currency region, with Germany’s expansion easing to 0.3% in the third quarter from 0.4%. Growth in Spain and Italy also slowed from the previous quarter, while Greece slipped back into contraction after back-to-back quarters of growth.
The EUR/USD pulled back sharply from the 1.08 handle, declining 0.7% or 73 pips to 1.0736. The pair is trading below its 50-day and 100-day simple moving averages. The EUR/USD faces immediate support at 1.0727 and resistance at 1.0867.
A fall in the EUR/USD helped lift the US dollar index after back-to-back declines. The dollar index was at 99.00 at the start of the North American session.
A slowing Eurozone economy will give the European Central Bank (ECB) the mandate it needs to expand monetary policy as early as next month. ECB President Mario Draghi said earlier this week that the central bank was prepared to act in a timely manner to help boost the regional economy.
Expectations for additional stimulus from the ECB weren’t enough to lift European stocks Friday, as the major averages declined across the board. London’s FTSE 100 was down 0.9% in intraday trade. Germany’s DAX also fell 0.5%. The pan-European STOXX 600 Index moved 0.7% lower.
A rocky European session followed a sharp retreat in Asia, as China’s Shanghai Composite Index closed down 1.4%. The CSI 300 Index of large stocks traded in Shanghai and Shenzhen also fell 1.3%.
Hong Kong’s Hang Seng Index closed down nearly 500 points or 2.2%.
Meanwhile, Tokyo’s Nikkei 225 Index fell 100 points or 0.5%.
Oil prices continued to trade near two-and-a-half month lows Friday, with US crude falling further below $42 a barrel. The West Texas Intermediate (WTI) futures contract declined 20 cents or 0.5% to $41.55 a barrel on the New York Mercantile Exchange.
Brent crude, the global benchmark, settled up 34 cents or 0.8% at $44.40 a barrel.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.