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Euro-Zone Falls into First Recession in 15 Years, Stoking Bets for Additional Rate Cuts by the ECB
Friday, 14 November 2008 09:14:25 GMT  |  DailyFX Research
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Euro-Zone Q3 GDP contracted 0.2% q/q, after already falling 0.2% q/q in Q2. GDP was up 0.7% y/y, after 1.4% y/y in the previous quarter. The drop was in line with expectations and confirmed that the Euro-Zone is in technical recession. The country breakdown showed Germany and Italy posting the sharpest declines, while an unexpected rise in French GDP helped to prevent an even larger drop. There is no breakdown with the preliminary number, but indications are that a sharp decline in investment was the main reason behind the contraction, while increased public spending helping to stabilize growth. Looking ahead, survey findings point to another weak GDP number in Q4, and even if growth stabilizes in coming quarters growth next year is unlikely to be much more than 0.0%, which should keep the ECB on course for further easing, especially as inflation is coming down faster than hoped for.
Meanwhile, Euro-Dollar (EURUSD) is little changed, with the pair consolidating below 1.2700 after it experienced modest selling from 1.2770 in early European trade. The move lower came ahead of the eurozone GDP release, which confirmed that the eurozone is in a recession, with Q3 GDP contracting 0.2% q/q. EUR-JPY and EUR-CHF experienced some light selling in early trade, although follow through was limited as the market lacked momentum ahead of today's U.S. retail sales data and the weekend G20 meeting. There is growing speculation that the meeting could deliver some widescale global measures to tackle the risk of a protracted and deep global recession, which offered some optimism and alleviated pressure on the dollar pairings. EUR-USD found support around 1.2660-65 and more bids are tipped at 1.2650, 1.2620 and 1.2600, while the topside should remain capped from 1.2780-00. Fundamentally, little has changed for Europe, with today's data clarifying what the market already knew, leaving prices to key off equity markets and the churn in the global risk profile.

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