THE TAKEAWAY: Euro-zone GDP declines 0.6% in Q4, more than expected -> ECB predicts a recovery later in 2013 -> Euro declines to a 2-week low

The Euro-zone economy contracted for the third straight quarter in Q4, thereby extending the area’s technical recession. The gross domestic product declined 0.6% over the quarter (seasonally adjusted), the highest quarterly decline in nearly 4-years, and the decline was worse than an expected 0.4% contraction and Q3’s 0.1% decline. The Euro-zone GDP dropped 0.9% from Q4 2011 according to a Eurostat initial estimate.

Over the entire 2012, Euro-zone GDP fell by 0.5%. German GDP fell by 0.6% over the fourth quarter, French GDP fell by 0.3%, and the Italian GDP was down 0.9%; the contraction in all three countries was worse than expected.

The economic contraction was expected by the European Central Bank, which reported in a bulletin released earlier today that weakness will continue through the beginning of 2013. The ECB further forecasts a gradual recovery later in 2013. Euro-zone PMI for composite output hit a ten month high in January, which is also supportive of an upcoming recovery. Signs of Euro-zone economic growth are Euro positive.

The GDP disappointment sent the Euro lower against the US Dollar in Forex markets. EUR/USD saw 100 points of decline since the French GDP release, and the pair is now trading by a new 2-week low around 1.3320. Support could be provided by a former support line around 1.3284, which is also the 61.8% retracement of the rally from the January 10 low to the February high. Resistance could now be provided by a former resistance line around 1.3374.

EURUSD Daily: February 14, 2013

Euro_Sets_a_2-Week_Low_as_the_Euro-Zone_Recession_Continues_body_eurusd_daily_chart.png, Euro Sets a 2-Week Low as the Euro-Zone Recession Continues

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to .