Forexpros – The euro erased gains against the U.S. dollar on Tuesday, falling to a fresh four-moth low, after talks aimed at forming a coalition government in Greece failed, fanning fears that the country could be forced to exit the euro zone.
EUR/USD hit 1.2771 during early U.S. trade, the pair’s lowest since January 18; the pair subsequently consolidated at 1.2788, shedding 0.27%.
The pair was likely to find support at 1.2733, the low of January 18 and resistance at 1.2868, the session high.
The euro weakened against the greenback after Panos Kammenos, the leader of a conservative party which opposes Greece’s international bailout deal, said cross party talks had ended without a deal.
A caretaker government will be appointed Wednesday, with new elections likely in early June. The announcement fuelled fears over the country’s ability to uphold its financial commitments and its possible exit from the euro zone.
The euro rose to a session high against the greenback earlier, after official data showed that Germany’s economy expanded more-than-expected in the first quarter, indicating that the euro zone’s largest economy is weathering the effects of the crisis in the region.
Germany’s gross domestic product grew by a seasonally adjusted 0.5% in the three months to March, above expectations for a growth of 0.1%.
A separate report showed that the euro zone avoided a recession in the first quarter, as GDP growth remained flat, defying expectations for a contraction of 0.2%. The euro zone economy contracted by 0.3% in the fourth quarter of 2011.
In the U.S., government data showed that retail sales inched up 0.1% in April, disappointing expectations for a 0.2% gain and growing at the weakest pace in four months.
Meanwhile, U.S. consumer prices, including food and energy costs, were flat last month for the first time since December.
A separate report showed that an index of manufacturing activity in New York jumped to 17.1 in May from 6.6 in April. Analysts had expected the index to rise to 8.5 in May.
The euro pared gains against the pound to re-approach a three-and-a-half year low, with EUR/GBP up 0.09% at 0.7974 and was hovering just above a three-month low against the yen, with EUR/JPY dipping 0.02% to hit 102.36.
Also Tuesday, Moody’s Investors Service announced widespread downgrades on Italy’s banking sector, amid concerns over limited access to market funding.
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