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The Italian economy contracted by 0.2%, half the early expectations. It was expected to squeeze by 0.4% in Q2 2013 after a fall of 0.6% in Q1. The year on year contraction is 2%. Italy is the euro-zone’s third largest economy and this is the 8th consecutive quarter of contraction – a recession of two full years: from Q3 2011 to Q2 2013. When will Italy return to growth?

EUR/USD remained steady in range, trading at 1.3260 before the release and is now marginally higher.

Earlier, Italy disappointed by reporting a small rise in industrial output: only 0.3% against 0.5% expected. The dire economic situation has prompted the opposition to issue a warning that Italy may default in the autumn and that there could be riots on the streets.

Italy has a high government debt, but a relatively low private debt level. Recent headlines coming out of the country were more related to politics: former PM and prominent figure Silvio Berlusconi was sentenced to time in prison and he hinted about bringing down the government.

After the false break above 1.33, EUR/USD returned back to range, and couldn’t make another break above this level. 1.3255 works as support, with 1.3175 serving as a more important line.

For more levels, events and analysis, see the EUR to USD forecast.