The EUR/USD continued to move lower after the latest round of economic data out of the Eurozone supported the case for more monetary easing by the European Central Bank (ECB).
The currency pair found comfort at 1.3750 following last week's large decline from a high of 1.3996. However, it was not able to put together a hefty rebound, staying below 1.3775 until it started a new leg to the downside on Tuesday morning.
Although data released on Tuesday showed that the decline in German wholesale prices slowed in April, the Italian Harmonized Consumer Price Index (HCPI) for the same month was revised lower to 0.5% year-on-year from the preliminary estimate of 0.6%.
The revision is expected to raise some eyebrows as analysts consider whether there will be a revision to the Eurozone's CPI reading for April. However, the revision is considered inconclusive, according to the Economic Research team at Barclays, as more finalized CPI readings are still due from several Eurozone members over the coming two days.
"Ahead of pending releases from France in particular, as well as final releases from other large countries, we find it difficult to draw any definitive conclusions for the euro area's final HICP. At this stage, we nonetheless continue to expect that it will be unrevised from its preliminary estimate at 0.7% year-on-year, although a slight upward revision at two decimal places seems likely," wrote analysts at Barclays.
The Eurozone's final CPI reading for April will be released on Thursday.
The other concern regarding the Eurozone economy on Tuesday centered around the ZEW economic sentiment indices for Germany and the Eurozone.
The ZEW Institute's gauge of economic expectations for Germany decreased by 10.1 points during the month, to reach a level of 33.1, below the consensus estimate of 41. In reaction to the data, analysts agree that Germany may not keep its pace of growth.
"The fifth consecutive decline in ZEW investor sentiment in May suggests that the German economic recovery might not gain much pace from here," concluded analysts at Capital Economics.
Looking ahead to the flash estimate of the Eurozone's first quarter GDP, due out Thursday, Barclays analysts expect growth to have peaked at 0.7% quarter-on-quarter. "Historically, the business cycle has often peaked shortly after the improving ZEW assessment of the current situation had overtaken declining investor expectations," they concluded.
Traders reacted by selling the euro against the US dollar. The EUR/USD broke below the support level at 1.3750 and headed straight for 1.37.
According to analysts at fxmania, the worse than expected economic indicators for the region appear to justifiy action by the ECB in order to turn around low inflation and help the economic recovery build momentum.
"It calls for more aggressive action by the central bank and perhaps more urgency than the 'comfortable with acting' rhetoric given by Mario Draghi," they said.