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Italian Economy Contracts for the 4th Consecutive Quarter

Italian Economy Contracts for the 4th Consecutive Quarter

Benjamin Spier, Technical Strategist

THE TAKEAWAY: Italian GDP falls 0.7% in 2Q, better than expected -> Austerity measures could further damage GDP-> Euro unmoved in today’s trading

Italy’s economy contracted for the fourth straight quarter in 2Q according to a preliminary estimate by the National Statistics Institute. Gross Domestic Product was down 0.7% from the previous quarter and 2.5% lower than 2Q 2011. The quarter over quarter contraction was slightly better than expectations for a second quarter of 0.8% negative growth.

The Italian government is currently implementing 20 billion Euros of budget cuts to bring Italy’s deficit within the EU limit. The austerity measures could further worsen Italy’s negative growth. PM Mario Monti has been pleading to expedite measures to fight the Euro crisis, which could include the ECB buying Italian bonds to drive down the borrowing costs of the struggling country.

Euro reversed earlier session gains against USD despite the slightly better than expected Italian GDP. EURUSD has spent the week trading within 50 points of the key 1.2400 line. The pair has traded in a downward channel since late May and could be viewed as currently retracing the rally from July’s 2-year low.

Italian_Economy_Contracts_for_the_4th_Consecutive_Quarter_body_eurusd_daily_chart.png, Italian Economy Contracts for the 4th Consecutive Quarter

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