Euro shows weakness ahead of ECB meeting as dollar up after China data

The euro has weakened across the board on Wednesday (15 April) as the market awaited the bi-monthly policy review by the European Central Bank later in the day, and was also weighed down by mild dollar gains after the weaker-than-expected China data earlier in Asia.

EUR/USD slipped to 1.0607 from Tuesday's close of 1.0655, moving further off the three-day high of 1.0708 touched in the previous session.

The USD index has rebounded to 99.05 from the previous close of 98.75, further distancing from Tuesday's intra-day low of 98.37, which was a three-day low. The index had ended the previous session 0.77% down, falling off the near-one-month high of 99.99 touched on Monday.

"Whilst it is in line with expectations a little risk aversion has set into the markets overnight and this morning. It is the industrial production and retail sales numbers that have worried investors," said Angus Campbell, FxPro analyst, in an email to IBTimes UK.

Investors see the ECB rate announcement and the subsequent press conference by its President Mario Draghi as the next important event of the day.

"Here investors will be keen to hear what Mario Draghi has to say about the QE program and the ECB's thoughts on the ongoing Greece negotiations," Campbell said.

China data

The Chinese economy expanded 7% from a year earlier in the first quarter of this year, slowing from the 7.3% growth in Q4-2014, but in line with expectations. The sequential growth rate, however, dropped more than expected to 1.3% from 1.5% as the consensus was for 1.4% growth.

Separate releases showed China's industrial output growth dropped to 5.6% from a year earlier in March from 6.8% in February while the market had been expecting a rise to 6.9%. Similarly, retail sales growth slowed to 10.2% from 10.7% against the consensus of an increase to 10.9%.

Euro crosses

The euro had touched fresh lows against the yen and pound on Tuesday before the US retail sales data weakened the greenback enabling the single currency move off its lows. However, early Wednesday dollar demand has reversed the trend again.

EUR/JPY slipped to 126.82 from the previous close of 127.22, edging back near to 126.08, the 22-month low touched on Tuesday. The EUR/GBP cross has dropped to 0.7195 from 0.7205 compared to 0.7180, the one-month low hit in the previous session.

UK data

The March jobs market data on Friday is the next important UK data in this week's calendar. The fall in claimant count is forecast to have dropped to 28,000 from 31,000 in February while the ILO unemployment rate for the three months to March may have fallen to 5.6% from 5.7%.

Data on Tuesday showed that UK's core CPI inflation eased to 1% from a year earlier in March vs the February reading of 1.2% which analysts had been expecting to repeat. The DCLG house price index slowed to 7.2% from 8.4% while the consensus was for a rise to 8.7%.

US data

The most important events from the US this week are yet to happen, the release of the March consumer price inflation and April consumer confidence indicator by Reuters/Michigan, both due on Friday. On Thursday, the weekly job market numbers and March housing market data will be in focus.