Daily Economic Commentary: Euro zone

[PipDiddy]

Hawkish comments from ECB officials buoyed the EURUSD above the 1.5000 mark. As the pair inched close to its yearly high, it fell sharply as the USD rallied on investors' profit-taking.

ECB member Axel Weber highlighted the improved outlook for the euro zone economy. Although he says that its still too early to withdraw the ECB's easing programs, the central bank must also be careful not to miss the right time for exit. Meanwhile, Nout Wellink, another ECB official, noted signs of stabilization in the Dutch economy, hinting that excess liquidity will be mopped up soon.

We'll see whether these upbeat remarks about the euro zone's economy are echoed in the actual economic figures. Euro zone is set to report its industrial production data at 10:00 am GMT today. After posting a 0.9% increase in August, industrial production is projected to be up by 0.6% in September. If the actual reading beats the consensus, then the EURUSD might find itself back above the 1.5000 handle.

Later on, ECB President Jean-Claude Trichet is set to give a speech entitled "The Transatlantic Marketplace: Challenges and Opportunities Beyond 2009" at 7:00 pm GMT. Would he talk about the timing of future rate hikes? Better stay tuned!

[PipDiddy]

In a single day the EURUSD erased most of its gains that it had for the week. The fiber fell to low of 1.4821 before closing at 1.4840 in yesterday’s price action.

The ECB’s monthly bulletin was published yesterday. Here, the ECB noted that the euro zone’s economy is seen to improve during the second half of this year. The ECB said that improvements will be gradual. It, however, remained its cautious stance by stating that the euro zone’s economic outlook is still subject to uncertainties.

Meanwhile, euro zone’s industrial production rose by 0.3% in September which is its fifth consecutive monthly gain as the demand for steel, machineries, and the like increased with a recovering global economy. During the same period, production of capital goods such as equipments advanced by 1.7%.

In spite of these ‘positive’ reports, the EUR still dropped against the USD.

The euro zone will take center stage today with the release of Germany’s and the euro zone’s third quarter GDP reports at 7:00 am GMT and 9:00 am GMT, respectively. Germany carries a lot of weight in the euro zone’s economy since it makes up about a third of its output. With Germany’s economy expected to have expanded again by 0.8% after posting a 0.3% growth during the second quarter, it might just be enough to pull the euro zone out of recession. The euro zone is seen to have logged a positive growth for the first time since the second quarter of 2008 with its GDP anticipated to have grown by 0.6% after contracting by 0.2% in the previous quarter. GDP is a broad measure of economic growth. Hence, any increase in this account could reflect positively on the EUR as well.

Professor Forex Gump wrote an article about the upcoming GDP releases. Check it out by clicking on this link: Third Quarter's The Charm for Euro Zone?

[PipDiddy]

Third time was indeed the charm for euro zone as its GDP report last Friday showed expansion. According to the report, euro zone’s economy expanded 0.4% during the third quarter of 2009 after contracting 0.2% between April and July.

Although the expansion posted was slower than expected, the results eventually proved to be beneficial for the euro as it managed to gain back some of its losses versus the dollar when the US session went rolling along. Digging deeper into the report would reveal that the surge in German and French exports was able to make up for weak consumer spending.

Euro zone’s economic cupboard is relatively light this week as only a bunch of medium-impact economic reports are due.

Today, expect to see the consumer price index at 10:00 am GMT. The prediction is that the average price level of goods and services fell in October by 0.1% after falling by the same percentage in September. However, the core report which excludes the prices of energy, food and other volatile items in its computation is expected to show a rise of 1.2%.

On Wednesday, the euro zone’s current account balance will be released at 9:00 am GMT. The estimate is that the current account balance report would show a €600 million surplus in October, up the €1.3 billion deficit seen the month prior.

Lastly, on Friday, the German producer price index is due at 7:00 am GMT. The report, which measures the monthly change in price of wares sold by manufacturers, would probably show that prices in October increased 0.1%.

[PipDiddy]

The EURUSD went for a wild ride yesterday, jumping up and down following the comments of US Fed Chairman Ben Bernanke. Still, overall sentiment pushed the EURUSD higher, but not enough to close above the 1.5000 handle.

Traders jumped all over Bernanke’s comments, as he said that the US Fed wanted a strong dollar. This caused some major dollar buying, which made the EURUSD drop dramatically. However, Bernanke also expressed some caution, saying that the economy was still far from recovery. At the end of the day, the EUR (along with other majors) came out victorious.

ECB member Axel Weber expressed the same yesterday, saying that even though governments all over the world were starting to stabilize their economies, sustainable recovery has yet to be accomplished. He said that all potential risks must be studied and that exit strategies must be formulated starting now. Weber said that if the ECB withdraws stimulus at the wrong time, it may put the economy in more danger.

Inflation data was released yesterday, indicating that consumer prices have fallen by 0.1% from levels a year ago. At the same time, the core consumer price index – which does not include prices of volatile items – shows that prices have risen by 1.2% from last year. Take note that the ECB keeps their eye on core data and that the ECB’s target inflation is at 2.0%. The ECB has been keeping interest rates at low levels in order to stimulate the economy, knowing that inflation is not a concern right now. However, once we see inflation start to pick up, the ECB may have to re-evaluate how low they want to keep interest rates at.

Today, at 10:00 am GMT, euro zone trade balance figures will be released. The report shouldn’t have too big an impact on the markets, given that German and French data have been previously released. It is expected that the trade deficit has shrunk to €900 million in September after being at € 1 billion in August.

Tomorrow, we could see more spikes in EUR trading, as ECB president Jean Claude Trichet will be speaking at 8:40 am GMT. After Bernanke’s comments on a strong dollar this past week, let’s see what Trichet has to say about this.

[PipDiddy]

Despite an impressive rise in exports, the EURUSD took a sharp dive from a high of 1.5016 all the way down to an intraday low of 1.4808. Their trade deficit actually turned into a surplus as exports increased at their fastest pace in 20 months yet the pair slid by more than 200 pips. What gives?

What prevented the EURUSD from rallying based on stronger than expected trade data were ECB President Jean-Claude Trichet's comments supporting a stronger USD. In his speech yesterday, he echoed Federal Reserve Chairman Ben Bernanke's statement concerning a strong USD policy. Judging from the recent trade figures, the strength of the EUR doesn't seem to pose an immediate threat to the euro zone economy but Trichet appears intent to talk the EUR down. He also mentioned that the EUR is not a reserve currency meant to replace the USD.

Today, Trichet is scheduled to give another speech at 8:40 am GMT. He is due to speak in front of the European Insurance and Occupational Pensions Supervisors Committee in Frankfurt. Would we hear another round of pro-USD comments?

Also due today is the euro zone's current account balance. Just like their trade balance, the current account deficit is expected to turn into a surplus this October. In September, the current account deficit amounted to 1.3 billion EUR. The consensus is a surplus of 0.6 billion EUR for October and we'll see whether the actual figure hits the mark by 9:00 am GMT.

[PipDiddy]

The EURUSD went silent for a while as it just consolidated between the 1.5000 resistance and 1.4808 for the past couple of days. It may be poised for a breakout soon. The question, though, is where? Break up? Or break down?

ECB President Jean-Claude Trichet spoke again yesterday at an awards ceremony in Frankfurt. In his speech, he reiterated the importance of a strong dollar. Despite his comments, the USD still lost a bit of support. The reason for this could be that the market already ‘priced in’ his views given his similar statements that he made just the other day.

Meanwhile, euro zone’s current account (CA) balance unexpectedly slipped in September. Euro zone’s CA fell from €600 million to -€5.4 billion. Its impact on the EUR’s short term valuation was, however, muted since the trade balance, which is a component of CA, was already released the day before. Euro zone’s trade balance rose from €2.2 billion to €6.8 billion given the 5.5% jump in exports.

Today (4:00 pm GMT), ECB President Jean-Claude Trichet will again deliver a testimony at the Euro50 Group Conference, in Paris. His speech will focus more monetary policies so volatility could be seen if he drops some clues regarding the bank’s probable future monetary actions.

[PipDiddy]

The EURUSD pair fell down a couple of steps in yesterday’s session as a wave of risk aversion hit the currency markets once again. It ended the US trading session at 1.4923, almost 100 pips lower from its Asian opening price.

It seems that concerns of a double-dip recession are surfacing again as President Obama warned the public that the increasing US debt could put downward pressure on growth. Add this to the fact that unemployment in the US and all over the world is still awfully high and generally rising. However, some analysts believe that the move yesterday was simply caused by investors taking profits off their short dollar positions.

On the docket today is Germany’s producer price index at 7:00 am GMT. The producer price index measures the monthly percentage change of the prices of goods sold by manufacturers. The expectation is that prices rose 0.1% October after falling 0.5% the month prior. Although not as closely watched as the CPI, the PPI could provide some clues about future inflation. Businesses tend to pass on additional costs they incur in operations to consumers.

Also watch out for another talk by ECB President Jean-Claude Trichet later today. He’ll be doing a speech titled “After the Crisis” in Frankfurt at 10:30 am GMT. That’s a pretty bold claim, considering economic recovery is not yet certain. I guess we’ll just have to hear out what he’s about to say! If he starts mentioning currencies, expect to see some wild volatility swings in the euro’s price action.

[PipDiddy]

The euro fell in Friday’s trading as stocks markets reacted to comments made by European Central Board President Jean-Claude Trichet. Coupled with continued dollar buying, this sent the EURUSD tumbling down to as low as 1.4800 and ultimately closing at 1.4862. Is the 1.5000 handle now a distant dream?

Last Friday, the ECB announced that they central bank would begin to withdraw economic stimulus measures in order to avoid a strong rise in inflation in the future. According to Trichet, not all the programs that are currently in place are needed as much as in the past. Also, the ECB plans to place more regulation and stricter rules regarding which banks can take out loans from the ECB.

These comments hurt European stocks, which fell for the 4th straight day. The reason for this is that tighter monetary policy standards normally leads to smaller profits. This in turn, jolted the markets on both sides of the Atlantic. I’ll be keeping an eye out on these developments as the ECB keeps on with their wait-and-see approach. I'm intrigued to see what happens if we see more signs of economic weakness and that the ECB suddenly thinks that they withdrew stimulus too early... Double dipping (recession) any one?

Also released on Friday was Germany’s producer price index. The report revealed that prices remained unchanged from September to October. On a yearly basis, producer prices have fallen by 7.5%.

It’s going to be a jam-packed week, as a slew of data is on deck from the euro zone. The rock-fest starts today, as we start off with purchasing manager indices from Germany, France and the euro zone. The PMI reports are all expected to show small improvements from last month’s data – could this take the euro out of its recent slump?

Tomorrow, the German Ifo business climate index is scheduled for release at 9:00 am GMT. The index – which is based on surveys given out to manufacturers, wholesalers, and retailers – is expected to print a reading of 92.6, up from October’s reading of 91.9.

Also, don’t forget that the German Final GDP report is due at 7:00 am GMT tomorrow. No revisions are expected to be made to the previous report, which showed that Germany posted growth of 0.7% last quarter.

[PipDiddy]

The EUR managed to edge higher against the safe-havens USD and JPY yesterday as PMI figures from euro zone came in strong. The EURUSD pair zoomed all the way up to retest the 1.5000 handle but the upward momentum cooled towards the end of the US session.

Except for the French manufacturing PMI, all the PMI readings released yesterday were right on target. French services PMI even beat the consensus as it surged from 57.7 to 60.4 in November. Manufacturing PMI from France, on the other hand, slid from 55.6 to 54.2 instead of simply dropping down a notch to 55.5 as expected. Both manufacturing and services PMI from Germany printed improvements over their October readings. Euro zone manufacturing and services PMI climbed as well.

ECB President Jean-Claude Trichet’s speech, which was widely expected to contain his usual pro-USD comments, was unable to drag the EURUSD down. Increased risk appetite may have provided support for the EURUSD pair yesterday as the US reported a strong rise in existing home sales. The actual figure blew right past the consensus of 5.71 million and landed at 6.10 million for the month of October.

Today, a bunch of high-profile reports due from the euro zone could stir up more volatility in the EUR pairs. Data on French consumer spending, which is projected to print a modest 0.5% uptick, is due at 7:50 am GMT. At 9:00 am GMT, the German Ifo business climate report will be released. The index of business conditions is slated to climb from 91.9 to 92.6 this month, providing further support for the EUR. Industrial new orders due 10:00 am GMT are expected to be up by 0.7% in September after rising by 2.0% in the previous month. Lastly, Belgium’s NBB business climate index might edge up from -14.2 to -11.3 in November. The actual figure is due 2:00 pm GMT.

With an entire day peppered with economic reports from the euro zone, price action of EUR pairs is bound to be extra rocky. Add to that a sprinkling of high-impact US economic reports and we might be in for a very volatile trading day. Be careful out there!

[PipDiddy]

It’s a good thing that the EUR was still able to close mixed against the dollar despite the downward revision in the third quarter GDP of the US. The EURUSD fell to a low of 1.4888 during the start of the euro session. Though, it managed to make a sharp turn quickly after to close higher at 1.4965.

Both French consumer spending in October and German Ifo business climate in November came in with better-than-expected results. French consumer spending rose 1.1% versus the 0.5% consensus. The German Ifo business climate index likewise trumped the 92.6 estimate with a 93.9 score. On top of these, industrial new orders for the entire euro zone also posted a 1.5% growth in September, better than the 0.7% projection.

These results buoyed the EUR until the US 3Q GDP was released. The EURUSD reversed its course when the US’s GDP for the third quarter was revised down to 2.8% from 3.5% due to a widening trade deficit.

Today, data from the German GfK consumer confidence survey for the month of December will be due at 7:00 am GMT. The index is seen to rise to 4.2 from 4.0. An increase in financial confidence could reflect positively on the euro zone since it can be used as a leading indicator of consumer spending. As we know, consumer spending makes up a huge chunk (about 57%) of the euro zone’s economic activity. Hence, a rise in the figure could also be bullish for the EUR.