EUR/USD Loses Important Support as Euro-zone GDP Dives

EUR/USD just lost the 1.3350 support line that provided support for the pair and was the lowest in February. The move below this line came as the euro-zone published Flash GDP figures for Q4. They showed a contraction of 0.6% in economic output, significantly lower than a drop of 0.4% that was expected, although previous releases already showed the way.

EUR/USD is now at 1.3342, and the next line of support is not that far away. Update: the fall continues, with 1.3330 getting closer.

Earlier, France reported a contraction of 0.3% instead of 0.2% that was expected, while Germany’s economy shrank by 0.6%, also worse than 0.5% that was expected. The biggest fall came from the euro-zone’s third largest economy, Italy, which contracted by no less than 0.9% in a single quarter, almost double the expectations for a squeeze of 0.5%.

France and Germany grew in Q3, so this contraction does not count as a recession. However, for Italy this is the sixth consecutive quarter of contraction, and it saw quite a few quarters of sharp contraction: -0.2%, -0.7%, -0.8%, -0.7%, 0.2% and now 0.9%.

For the whole euro-zone, this is the third consecutive quarter of contraction, but the sharpest so far: Q2 saw a drop of 0.2%, Q3 was -0.1% and now -0.6%.

The news is quite depressing, but early signs from Germany provide hope that Q1 2013 will see a return to growth, at least in the German locomotive.

These releases prepared the market for a disappointment for the whole European Monetary Union. Nevertheless, this was the push that was needed for the pair to break below 1.3350.

1.33 provides some more support, and it is followed by 1.3255. 1.3350 now turns into resistance, with 1.34 capping the pair above. For more levels, see the EURUSD forecast.