Forex - EUR/USD plunges on growth worries, political concerns

Investing.com - The euro traded sharply lower against the U.S. dollar Monday, as Chinese growth concerns combined with political uncertainty in France and Netherlands sent investors fleeing to the safe haven greenback.

EUR/USD hit 1.3105, the pair’s lowest since Thursday, then bounced to 1.3134 during U.S. afternoon trade, still down 0.64%

The pair was likely to find support at 1.3068, Thursday’s low and resistance at 1.3209, the session high.

Sentiment on the euro deteriorated after Dutch Prime Minister Mark Rutte’s government was forced to resign after negotiations on its austerity budget for 2013 broke down.

In addition, French borrowing costs increased Monday, after President Nicolas Sarkozy poor performance against challenger Francois Hollande in the first round of the country’s presidential election.

Hollande stated he wants to renegotiate the euro zone’s fiscal pact in order to stimulate growth in the bloc, rather than enforcing strict austerity measures.

Meanwhile, worries over the economic outlook mounted after data showed that the euro zone's manufacturing output slumped to its lowest level since June 2009 this month, while its services sector fell to a five month low.

The decline was driven by poor performances in Germany and France, with manufacturing activity in Germany slowing to the lowest level in almost three years.

The weak data fuelled fears economic growth in the region will be hit by planned government austerity measures.

An index signaled that Chinese manufacturing may shrink for the sixth straight month in April fostering fears of a continuing global economic slowdown.

The broadly weaker euro fell to a 20-month low against the pound, withEUR/GBP giving back 0.57% to hit 0.8150 and fell sharply against the yen, with EUR/JPY plunging 1.15% to hit 106.54.

In other euro zone bearish news Monday, the Bank of Spain reported it believes that the country’s economy has entered a recession. 

The central bank said gross domestic product contracted by 0.4% in the three months to March. That follows a 0.3% contraction in the fourth quarter, and zero growth in the third quarter of last year.