Growth in the Eurozone was weaker than expected over the prior quarter according to the latest data. 3Q GDP came in at 0.2% quarter on quarter, undershooting expectations of 0.3% and moving lower from the previous 0.4% reading. The annualized figure was also weaker than expected at 1.7%, missing expectations of 1.8% and well below the prior 2.2% figure last quarter.
Various reasons are being cited for the weak figure such as disruption to German car production, weaker than expected French growth and the heavy stagnation in growth seen in Italy which, for the first time in four years, didn't post any growth last quarter.
The overall Eurozone reading is now the weakest since 2014 while in Italy, the low growth reading will spell big problems for the ongoing budget negotiations. Given the 3% growth forecasts included in the budget assumptions, the EC is likely to be extremely tough on Italy as it insists the country reduce its spending and aim to shrink its deficit.
This latest data, while it certainly won't be welcome by the ECB, shouldn't alter the central bank's plans to wind QE down at year-end. However, it could fuel a downward revision to the next macro-forecasts which might cast some doubt on how early the bank is likely to raise rates next year.
For now, EURUSD continues to trade within the falling wedge pattern which has framed price action over the last year with price now sitting just ahead of the key 1.1348 level which is the year to date low. If we see a break of this level, we are likely to see momentum players join the market, taking price lower still with the next big support base not until 1.0866 – 1.0921.