EUR/USD plunges sharply after Euro zone string of economic data

The euro plunged to new session lows against the US dollar on Thursday, following a string of disappointing economic data released out of the Euro zone, which only reinforced the view that economic recovery in the region remains frail.

EUR/USD tumbled to a session low at 1.3633 at 10:50 GMT, also the pairs lowest point since October 21st, after which consolidation followed at 1.3642, falling 0.68% for the day. Support was likely to be received at psychological level of 1.3600, while resistance was to be encountered at current session high, 1.3738.

Eurostat reported earlier on trading Thursday that the preliminary annual consumer price index in the Euro zone, evaluated in consonance with the harmonized methodology, climbed 0.7% in October, marking the slowest pace since November 2009, after in September the index rose 1.1%. Inflation rate diminished in Germany and Spain, with the annual CPI in these countries rising only 0.1% in October. This data puts more pressure upon the European Central Bank (ECB) to increase the money supply and support economic activity. The ECB has said there was a “subdued outlook” for price growth in the currency bloc, while the October data marked the ninth consecutive month, during which the inflation rate has been below banks 2% objective. While regions economy has exited the 18-month recessionary period and survey results improved, the central bank projects a “gradual” recovery. Lower inflation also suggests a weak domestic demand in the common currency bloc.

The inflation data “should increase market speculation that the ECB changes its bias on inflation risks,” BNP Paribas strategists led by Steven Saywell in London, wrote in a note to clients, cited by Bloomberg. “Our economists now forecast a rate cut in December. Given that the market has underpriced this, we think that there is substantial scope for euro to weaken in the next few weeks.” ECB policymakers are expected to hold a meeting on November 7th.

At the same time, the rate of unemployment in the common currency bloc reached at record level at 12.2% in September, after in August the rate has been revised up to 12.2% from 12.0% previously. In the European Union as a whole, unemployment remained unchanged in September compared to a month ago at 11.1%. The number of unemployed people in the Euro zone climbed to 19.447 million in September from 19.387 million in August. In the European Union the number of jobless people rose to 26.872 million in September from 26.811 million a month ago. The rate of unemployment in Italy unexpectedly rose in September to reach 12.5% from 12.4% in August, as experts had projected a slow down in unemployment to 12.3%. In Spain the rate of unemployment was 26.6% in September, while in Greece – 27.6% during August, which appears to be the most recent result.

Earlier in the day, German retail sales were reported to have dropped in September, confounding preliminary estimates, which implied that business development in the country will probably remain moderate. Sales decreased 0.4% in September compared to August, while experts had anticipated that the indicator will increase 0.4%. Volume of sales has dropped to its lowest level since March, but however, according to economists, overall retail sales outlook remains positive. Annual sales increased 0.2% in September, after a revised up 0.4% gain in August (0.3% gain previously).

In addition, according to the ”Gfk-Wirtschaftsdienst Konsum – und Sparklima” survey, consumer confidence in Germany unexpectedly decreased, despite that prospects remain positive, as labor market in the country demonstrates stability. The index of consumer confidence for November dropped for the first time in ten months, reaching a reading of 7.0, after in October it climbed to a six-month high at 7.1. Experts had expected an advance to 7.2 in November. According to Gfk research group, this result does not imply a change in trend.

Last but not least, another report revealed that consumer spending in France lowered 0.1% in September on a monthly basis, following a 0.3% dip in August, while expectations pointed a 0.3% increase last month.

Meanwhile, the euro was trading lower against the sterling, with EUR/GBP cross losing 0.72% on a daily basis to trade at 0.8506. EUR/JPY pair was also down for the day, falling 0.86% to trade at 134.08. The euro has gained 6.4% during this year, or the best performing currency among the 10 developed-nation currencies, which are tracked by Bloomberg Correlation-Weighted Indexes. The US dollar has appreciated 2.5%, while the Japanese yen has plunged 11% during the same period.