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  • EUR/USD closed back above 1.1176 on Monday, neutralizing immediate bearish view.
  • The corrective bounce could be capped by tighter Italy-German yield spreads.
  • Recent lows could again come into play if the German employment, inflation numbers and the Eurozone GDP print below estimates.

EUR/USD’s corrective bounce could be short-lived if the key German data, due for release today, print below estimates.

The shared currency jumped 0.41 percent on Monday and closed above the former support-turned-resistance of 1.1176, possibly in response to a six basis point drop in the spread between the US and German two-year government bond yields on Friday.

While a close above 1.1176 has neutralized the immediate bearish outlook, a stronger corrective bounce above 1.12 may remain elusive if the Italy-German 10-year yield spread extends the 16 basis point drop seen over the last two trading days.

The Italy-German yield differential, however, may take a back seat if the key German and Eurozone  economic data releases paint a positive picture of their respective economies.

The data due at 07:55 GMT is expected to show the German economy shed 6K jobs in April and the seasonally adjusted Unemployment Rate remained steady at 4.9%. Meanwhile, Eurozone’s first quarter GDP is forecasted to have risen 0.3%  quarter-on-quarter and 1.1%  year-on-year. That data is scheduled for release at 09:00 GMT.

The EUR may rise to 1.12 or higher if the German jobs data and the Eurozone GDP beat estimates. The rise, however, could be reversed if Germany’s preliminary consumer price inflation (CPI), due at 12:00 GMT, prints below the estimate of a 0.5% month-on-month rise, validating the European Central Bank’s (ECB) dovish stance.

As of writing, the EUR/USD pair is trading at 1.1187, representing marginal gains on the day. It is worth noting that China’s private and official Manufacturing PMIs released in Asia showed the sector barely expanded in April. As a result, the equities may remain on the defensive, capping the upside in the EUR ahead of the key data releases.

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