Euro Weakens As German Business Sentiment Index Slips

Canbera (May 23)   The European currency dropped against most major currencies in early European deals on Friday following the release of a report showing a decline in IfO's German business sentiment index for May, adding expectations that European Central Bank may ease monetary policy at its meeting next month.

Concerns over EU election results also weighed on the single currency.

Confidence among German firms deteriorated more-than-expected in May, according to results of the IfO's survey.

Business confidence index fell to 110.4 in May from 111.2 in April. The score was forecast to fall to 110.9.

Similarly, current conditions index dropped to 114.8 from 115.3, while it was forecast to rise to 115.4.

Expectations among businesses declined, with the corresponding index dropping to 106.2 in May from 107.3 in April. The reading was also below the consensus of 106.5.

Meanwhile, German GDP grew 0.8% sequentially in the first quarter, up from 0.4% in the fourth quarter. The quarterly rate came in line with the provisional estimate published on May 15 , a report from Destatis.

Gross fixed capital formation advanced at a faster pace of 3.2% on the previous quarter. Household final consumption expenditure climbed 0.7% on the fourth quarter. At the same time, general government expenditure grew only 0.4%.

The euro fell to 0.8081 against the pound for the first time since December 11,2012 . This may be compared to an early high of 0.8103. If the euro extends its decline, it is likely to find support around the 0.79 zone.

Against the greenback, the euro fell to more than a 3-month low of 1.3616, from an early high of 1.3659. The next possible downside target of the euro is seen at 1.35.

The euro fell to an 8-day low of 1.4843 against the Canadian dollar and a 2-day low of 138.60 against the yen, from yesterday's closing quotes of 1.4874 and 138.92, respectively . The next possible downside target of the euro is seen at 1.47 against the loonie and 137.86 against the yen.

Against the NZ and Australian dollars, the euro fell to 1.5920 and 1.4748, from early highs of 1.5951 and 1.4809, respectively. The euro closed yesterday's deals at 1.5944 against the kiwi and 1.4803 against the aussie. Further slide of the euro may lead it to support around 1.58 against the kiwi and 1.47 against the aussie.

Looking ahead, Canada CPI and US new home sales for April are slated for release in the New York session.