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Eurozone under pressure after GDP decline

Forex Analysis - 16th August 2012

Written by Imran Allana, FX & Commodity Dealer


This week’s announcement that EU GDP in the past quarter was -0.2% has indicated that Europe is teetering on the edge of recession. Although the reading was in line with market expectations, it is worse than the previous figure of 0 percent. This does not technically put Europe in a recession, but puts it very close. Europe’s economy has not been in recession since 2009, but its GDP figure has fluctuated in the intervening time. Despite this, the Eurozone has managed to stave off two consecutive quarterly periods of negative growth and, subsequently, a recession.

Although the Eurozone as a whole may be on the verge of a recession, it seems that Germany and France have both experienced an expansion in their economies, as seen from their preliminary GDP q/q figures, with readings of 0.3 percent and 0 percent respectively.

A string of negative data has also been released including the German ZEW economic sentiment and industrial production figures, both showing a negative outlook for the Eurozone of -21.2 and -0.6 percent respectively. These negative readings are adding more pressure to the already pessimistic view in the market which has seen the single currency subject to volatile moves of late. Much of this recent activity has been on the back of comments from ECB president Mario Draghi after he stated that the ECB will be ready to act and do all in its power to stabilise the single currency.

The trend in the market currently seems to be to short the euro, but traders should be wary of any shocks that may come off the back of further announcements from the ECB.

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