• EUR/USD hits session highs near 1.1650 after bouncing from 1.1610 lows on Thursday.
• Eurozone GDP contracted in Q1, for the first time in more than three years.
• Investors are cutting US Dollar longs ahead of the release of the US Nonfarm Payrolls report.

The Euro (EUR) is going through a solid recovery against the US Dollar (USD) on Friday, reaching levels a few pips shy of 1.1650 at the time of writing. Markets have ignored the unexpected decline in the Eurozone’s Q1 Gross Domestic Product (GDP) and keep trimming USD longs, positioning for the  US Nonfarm Payrolls report.

Eurostat revised down the first quarter’s Eurozone economic growth to a 0.2% contraction, for the first time in more than three years, from previous estimations of a 0.1% growth, and following a 0.2% advance in the previous quarter. Year-on-year, the Eurozone’s GDP has grown at a 0.3% pace, also revised from the 0.7% increase previously estimated and below the 1.2% growth posted in Q4

Beyond that, Eurozone employment has increased 0.1% in the first three months of the year, in line with the market consensus and down from the 0.2% growth posted in the previous quarter.

These figures do not alter the view that the European Central Bank (ECB) will hike rates next week, but they do cast doubts about the bank’s margin to keep tightening its monetary policy in the coming months.

Investors, however, are focused on the US Nonfarm Payrolls report, due later in the day. The market is forecasting an 85K increase in net jobs in May, below April’s 115K increase but significantly above the 10K average increase seen last year. If these figures are confirmed, they will highlight a robust labour market and strengthen the case for Federal Reserve (Fed) tightening down the road, if inflation remains at high levels.