The greenback edged higher against the euro on a combination of better than expected US economic reports and continued risk aversion flows. Crude oil slid by over 3.5% to around $56.50 per barrel, while US equities also dipped lower with the Dow Jones and S&P 500 both lower by more than 1%.

The reports released earlier in the session were largely better than expected with the NY Fed manufacturing in May improving to -4.55 from -14.65 in April and industrial production posting a 0.5% decline compared to a 1.5% fall in March. The University of Michigan consumer sentiment survey in May climbed to 67.9, up from 65.1 from April, while the expectations component edged higher to 69.0 from 63.1.

Euro Declines on Dismal GDP

The euro plunged sharply against the dollar and the yen in the Friday session, dipping to 1.3463 against the greenback and breaching the 128-level versus the yen. The catalyst for the steep sell-off was data revealing a sharper than expected contraction in the Eurozone economy, with Q1 GDP posting a 2.4% quarterly decline versus 1.9% in Q4 and a 5.9% drop in economic activity, sharply lower than the 2.9% contraction a year earlier. The dismal report revealed the steepest contraction for the Eurozone in 13-years. Germany's economy, the largest in the Eurozone, posted steep declines in activity as well with Q1 GDP falling by 2.4% from 1.9% in the previous quarter and lower by 6.7% from a year prior with a 1.7% decline.

The unexpectedly soft growth data raises the question of whether additional rate cuts can be expected from the ECB to jumpstart the ailing Eurozone economy. While recent comments from Bank President Trichet have tempered the likelihood for further easing, the latest bout of data may prompt the ECB to reassess the need for aggressive rate cuts.

EURUSD trades near its lowest level in a week beneath the 1.35-handle around 1.3475. Support is seen at 1.3450, followed by 1.3430 and 1.34. Subsequent floors will emerge at 1.3370, backed by 1.3340 and 1.33. On the upside, gains will target interim ceilings at 1.35, followed by 1.3550 and 1.36. Additional resistance is seen at 1.3640, backed by 1.3680 and 1.37.