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  • The sell-off in EUR/USD stalled on Friday following the release of US first quarter GDP.
  • Spanish political uncertainty could cap upside in the EUR.
  • A below-forecast March US Personal Income and Spending will likely yield broad based USD sell-off.

The downside pressures around the shared currency have ebbed following Friday’s US GDP release.  EUR/USD is currently trading at 1.1159, having clocked a low of 1.1109 on Friday.

The relief, however, could be short-lived, courtesy of political uncertainty in Spain.

Spain’s incumbent Prime Minister and leader of Spanish Socialist Workers’ Party (PSOE) Pedro Sanchez has won elections but with no clear majority in parliament. As a result, the victorious party faces weeks of tense coalition negotiations in fragmented political political scene.

More importantly, if the parties fail to form a government then Spaniards could return to the polls later this year, following the municipal and European Parliament elections in late May.

The political situation in Spain is EUR-negative in the short-term. Eventually, however, economic performance could overshadow political uncertainty. It is worth noting that Spain’s economy did well after the December 2015 elections had produced a hung parliament, leaving the nation without government for ten months.

Apart from political developments in Spain, the EUR/USD could also take cues from the US Personal Spending and Personal Income data and the Core Personal Consumption Expenditure – Price Index, scheduled for release at 12:30 GMT.

It is worth noting that Friday’s US GDP release was a big beat on expectations. Even so, the American Dollar was offered as details of the report revealed a weak undertone and renewed concerns of deeper slowdown in the coming quarters.

These fears will likely be reinforced if the US Personal Spending and Core PCE figures disappoint expectations, sending the greenback lower across the board. In that case, EUR/USD will likely climb 2.12 despite the Spanish political uncertainty.

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