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Euro moves toward 2013 lows

FXstreet.com (Córdoba) - Despite a short-lived setback, the dollar continues to build a bullish trend, advancing versus most competitors. The greenback faced some profit taking after the latest string of US data, including NY manufacturing index, producer prices and industrial production, came in weaker-than-expected, supporting the case that it is too early for the Fed to tapper its QE3 program.

However, on the other side of the Atlantic things aren't better as the Eurozone reported today a larger than expected fall in first quarter growth figures. The biggest disappointment was Germany, which saw the economy grow at 0.1% QoQ (below 0.3% expected), but contract by 0.2% YoY (versus +0.2% expected).

Commenting on GDP numbers, the BBH analyst team notes that the mix of slower growth and further disinflation (moving towards outright deflation) will surely fan expectations of further ECB actions, which Draghi has pledged it stands ready to do. "We believe the ECB has entered string-pushing territory, but at the very least, market reaction (selling the euro) should help the euro zone economy at the margin, perhaps more than another symbolic cut in the refi rate would", says BBH. "A weaker euro is needed now, not a stronger euro".

Taking into account that the dollar setback was quite shy, it seems that investors are still thinking that the last several weeks of positive data point to a US recovery and possibly cut of Federal Reserve stimulus.

EUR/USD broke below the 1.2900 mark and fell to a 6-week low of 1.2842 before finding support, although the subsequent bounce stalled quickly at the 1.2890 area. Short-term indicators keep the bearish tone intact although reaching oversold levels, which may suggest a consolidation phase could take place before another leg lower.

Next bearish target stands at 1.2746, which is the 2013 low scored early April. A break below this latter would pave the way for a dip toward 1.2660 (Nov 2012 monthly low). On the other hand, the EUR/USD needs to at least regain the 1.3000 level to ease immediate pressure.

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