LONDON (MarketWatch) - The European single currency recovered from an early dip triggered by confirmation Germany, the euro-zone's biggest economy, slipped into recession in the third quarter.
The euro fell to $1.2388 against the U.S. dollar, its lowest level in two weeks. The single currency soon bounced back, boosted by corporate buying, said John Rivera, a currency analyst at DailyFX.com.
The euro traded at $1.2507 in recent action, little changed from North-American trading activity late Wednesday.
But strategists said renewed worries about global financial turmoil and the world economic outlook could make it difficult for the euro to continue a correction versus the dollar that began at the start of the month.
"Our standing view is that a prolonged period of sub-par global growth and a deflationary environment is more supportive to the dollar than to the single currency," wrote strategists at KBC Bank in Brussels.
"This theme was an important factor behind the decline of [the euro] from $1.60 to below $1.24" versus the dollar earlier this year, they said.
Indeed the dollar and, to a greater extent, the Japanese yen have been beneficiaries of deleveraging, liquidation and safe-haven flows during periods of intense financial turmoil.
Important technical support is seen at $1.2330, which marks the Oct. 28 low, strategists said. Further support is seen at $1.2290, which marks the euro's 1998 high.
The KBC strategists contend the euro/U.S. dollar pair is in a sideways consolidation pattern bounded by $1.2330 and $1.3297.
Whether the bottom of the range holds remains intact depends on whether or not major stock indexes hold key support levels, such as 840 in the S&P 500 , they said.
"Looking at those charts (and to the oil price), it becomes obvious that the risk of a break has become a decent possibility," they wrote.
Third-quarter German GDP data released Thursday underscored worries about the euro-zone's economic outlook.
The country's Federal Statistics Office said gross domestic product, or GDP, contracted by a larger-than-expected 0.5% in the quarter. That follows an upwardly revised 0.4% GDP drop in the second quarter. Two consecutive quarters of shrinking GDP is a commonly used definition of a recession. See full story.
The figures make it all the more likely that data for the euro zone set for release Friday will show that the entire 15-nation region has slipped into recession, economists said.
The pound traded at $1.4924, little changed from late Wednesday.
Sterling slumped to a six-year low against the dollar and an all-time low against the euro Wednesday after the Bank of England signaled it was prepared to aggressively cut interest rates further in response to rapidly slowing growth and the potential threat of deflation.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, was little changed at 87.562.
The dollar was slightly higher against the Japanese currency at 95.84 yen, up from 95.09 yen Wednesday. The euro was also higher against the Japanese unit at 119.93 yen, up from 118.95 yen.
