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The economy of the euro-zone’s third largest economy squeezed by 0.5%. Italy was expected to contract by 0.4% in the first quarter of 2013, making it the sixth consecutive month of economic decline. The previous quarter was the worst: a drop of 0.9% in output (before revisions). Year over year, it fell by 2.3%, slightly worse than 2.2% estimated.

EUR/USD was on the back foot prior to this publication, making an effort to hold onto 1.29 after reaching a low of 1.2887, only 7 pips above support at 1.2880. After the publication, the pair makes minor gains. The disappointment isn’t that big, especially not compared to the German disappointment.

Earlier, Germany disappointed with a growth rate of only 0.1% in Q1 2013. This was worse than expected (+0.3%) and also came on top of a downwards revision for Q4 2012. The euro-zone’s locomotive is losing steam. Also French GDP came out below expectations: -0.2%, putting France in an official recession.

At 9:00 GMT, the figure for the whole euro-zone will be released. After the German disappointment, the market probably expects a worse outcome than -0.1% initially projected. In Q4, the euro-zone squeezed by 0.6% (before revisions).

For more, see the EURUSD forecast.

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