FXstreet.com (Barcelona) - The Euro reversed on Friday all the gains posted in Thursday's rally, dropping as low as 1.2565 support level, selling pressure could increase in case European data disappoints.

Europe is going through a wave of risk aversion on a concern of a deepening financial crisis, markets have opened down again on Friday after declines in Wall Street and Asia all markets are posting losses beyond 2% with German Dax Index 2.84% lower, and French CAC Index 2.94% down.

On the fundamental area the outlook is not much brighter ; Euro Zone Manufacturing sector seems to be contracting at a record pace, February's preliminary PMI Index has dropped to 33.6 from 34.4 in Feb while the German Manufacturing PMI fell even lower, to 32.2. Services sector's activity has also contracted sharply.

According to Flemming J. Nielsen, analyst at Danske Bank, the Euro could drop to levels around 1.2400 in the medium term: EUR/USD. In general, however, we still see the fundamental impulses supporting the USD and weighing on the euro and target EUR/USD at 1.24 in three months. That said, risk sentiment remains key and a potential recovery in equity markets could see the pair spike temporarily higher.