Euro Falls As Recession Deepens

Includes: FXE
by: FXstreet

The euro is among the worst performers on Thursday, as the shared currency came under pressure after the eurozone and the bloc's two largest economies, Germany and France, reported GDP shrank by more than expected in the fourth quarter, recalling investors that the crisis is not over.

The euro weakened further and extended losses versus the dollar and the yen after ECB Vice President Constancio suggested negative interest rates are a possibility.

Elsewhere, the Cable dropped toward fresh 6-month lows sub-1.5500, while the USD/JPY remained sidelined, consolidating within its Monday's range despite Japan reported a 0.1% contraction in Q4 GDP and the BOJ concluded its 2-day meeting, leaving policy unchanged.

In the macroeconomic domain, US jobless claims fell more than expected last week to 341,000, but failed to cheer investors up. Stocks were mixed in Wall Street while European markets were broadly lower.

Investors will now be watching developments out of the G20 meeting today. "Although there may be some volatility around that meeting (G20), the underlying fundamentals for the euro and yen are generally negative, suggesting further (and possibly gradual) weakness for those currencies against the greenback over time", says Nick Bennenbroek, Head of Currency Strategy, Wells Fargo Bank.

Euro threatens 1.3300 support

EUR/USD broke below recent lows at the 1.3350 area and stretched to 1.3315 during the European session in the wake of GDP data and Constancio comments. However, the pair managed to stabilize afterwards and has spent the last hours within a narrow range.

Technically speaking, short-term indicators remain in negative territory but as they correct from oversold levels, EUR/USD could see further consolidation before another leg lower. A break below 1.3308 (38.2% retracement of the 1.2660/1.3710 broader rally) could trigger a deeper correction with the 1.3255 area as next target, ahead of 1.3200/1.3180 (psychological level/50% retracement). On the other hand, the euro needs at least to regain the 1.3440 zone (20-day SMA) to ease the bearish pressure.

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