Weak French and German GDP data sent EUR/USD diving in early European trade today with the pair breaking below the 1.3400 level before finally finding some support. The flash reading for Q4 French data printed at -0.3% versus -0.2% eyed while Q4 GDP data for Germany came in at -0.6% versus -0.5% expected.
Germany’s fourth-quarter contraction was caused by declining exports as well as less company investment and construction, the statistics office said. Household and government spending increased slightly. More complete data will be released on February 22nd.
Part of the contraction in economic activity was no doubt due to the uncertainty surrounding the US budget situation in Q4 which may have delayed business investment activity. More recent economic data has suggested some pick up in demand. However, the weak results from Eurozone’s two core economies highlight the difficulties in growth in the overall region and suggest that a strong EUR/USD may make matters even more difficult in 2013 as both economies attempt to use exports to fuel growth.
The EUR/USD dropped to a low of 1.3381 before finally finding some support. Yesterday the pair was quickly rejected at the 1.3500 level which now stands as a key resistance point while 1.3350 remains the nearby support. Over the past week the pair has lost much of it luster as the cold hard reality of sluggish EZ economic growth is beginning to sink into the market and the EUR/USD has continued to drift lower. With the start of G-20 on the agenda today currency traders will be looking for any additional comments on exchange rate volatility and the pair could see more selling as the day proceeds.