According to Eurostat data, the European economy contracted by a finalized 0.1% in the third quarter of last year. Although relatively expected by the market, the final GDP figure confirms what has been known for some time – the EZ recession isn’t going anywhere. On an annualized basis, the region’s contraction is coming in at 0.6%, within range of recently downgraded forecasts by the European Central Bank.
The bearish figure is fueling speculation that ECB officials will have to consider a 25 basis point reduction at their January meeting tomorrow – backing earlier notions of “wide discussions” of a rate cut at the end of last year.
German Output Slump
European GDP wasn’t the only thing that failed to rally Euro bullishness. German Economy Ministry data showed that industrial production for the region’s largest economy gained by a paltry 0.2% in November. Although widely positive, the figure fell below expectations of a 1.1% uptick, and serves as only slightly better given the report’s previous 3-month slump.
Further report details reveal that, although investment goods production rose on the month at a pace of 1.4%, energy production losses supported the milder monthly gain. In November, consumer goods production slumped by 2.2%, with energy production declining by 3.3%.
Ultimately, today’s report simply falls in line with earlier Bundesbank forecasts that the German economy will stall in the first quarter of this year, on the heels of a narrower contraction at the tailend of 2012.
Given the fact that the EURUSD has extended through on a break below 1.3100, declines are expected to continue towards support via the 1.3000 round figure. Further penetration lower would activate support barriers lower at 1.2937 and 1.2908. Conversely, any upside potential remains contingent on the major pair’s ability to violate the 1.3200 psychological figure.
Source: FXTrek Intellicharts