Daily Economic Commentary: Euro zone

[PipDiddy]

The EUR extended its streak to 3 against the dollar and yen last Friday. The EURUSD soared to 1.3762 from 1.3680. The EURJPY, in a similar fashion, closed higher at 124.50 from 123.87.

The euro zone’s industrial production came in a lot better than anticipated, gaining by 1.7% in January. The consensus was only 0.8%. The previous month’s tally was also revised up to 0.6% from -1.7%. The euro, as a result, got a big boost right when the positive results were posted.

This week will start with the publication of euro zone’s employment change during the last quarter of last year. The third quarter saw a 0.5% decline in job hiring which is a loss of 2.1% on a year on year basis. Overall output growth in the 3Q within the EZ was almost flat at 0.1%. With the economy unable to post much gain, employment hiring could very well be stagnant as well.

Tomorrow, Germany’s and euro zone’s Zew economic sentiment in March together with the euro zone’s February CPI figures will be on tap. Sentiment in Germany is projected to fall to 43.5 this month from 45.1. Sentiment in the euro zone is anticipated to weaken as well to 40.1 to 40.2. Remember, however, that one of the top officials in the EU announced that Greece’s debt problems are already ‘over.’ Will this news reflect on tomorrow’s reports?

On a separate account, the euro zone’s inflation figures will be on tap also tomorrow. Y/Y headline CPI is projected to have remained the same at 0.9% in February. The core version of the account, on the other hand, likely softened a bit to 0.8% from 0.9%.

On Thursday, the euro zone’s current account and trade balance in January will be due. The economy’s current account likely expanded to €2.9 billion from €1.9 billion. The trade balance, on the other hand, is expected to have narrowed to €5.1 billion from €7.0 billion. Since the trade balance is seen to have declined, the increase in the economy’s current account could be attributed to some gains in its income payments and/or unilateral transfers.

Finally, Germany’s February PPI will be on deck this coming Friday. Producer prices in Germany are seen to have softened to 0.1% from 0.8%. The result of this account, however, could have a minimal impact on the euro’s short term valuation since the euro zone’s CPI will be already be released earlier.

[PipDiddy]

The euro finally ended its three-day winning streak against the dollar yesterday. The EURUSD found itself drowning way below the 1.3700 handle by the end of the day, more than 120 pips lower from its week open price.

The euro sell-off was primarily caused by the rumor that went around that Germany and France have no plans of bailing out Greece. According to them, Greece's €4.8 billion in budget cuts is sufficient to get them out of their own debt mess. And once again, this was taken as sign to sell the euro, causing the EURUSD to completely erase its gains from Friday. Like I said yesterday, unless the euro zone debt drama blows over, the euro's gains will remain capped!

On the docket today, at 10:00 am GMT, watch out for the German Zew economic sentiment survey. The survey, which is designed to predict the direction of Germany's economy for the next six months, is expected to print a reading of 43.5 for this month, slightly lower from the reading seen last February. If forecast holds, it could spell trouble for the euro, as it would mark the sixth consecutive month of decline.

Euro zone's February consumer price index will also be released at the same time. The consensus is that the average level of prices of consumer goods and services rose by 0.9% year-on-year. Since the ECB's inflation target is set at 2%, the possibility of an early rate hike remains low.

That's about it for the euro today... I'd keep a eyes peeled for developments on Greece's debt, as it's garnering quite a bit of attention again...

[PipDiddy]

It was turn back the clock Tuesday for the euro, as it reversed most of its losses from the previous day. The EURUSD closed 90 pips higher to end the day at 1.3766. Will the pair finally break past the 1.3800 handle?

Yesterday, the German ZEW economic sentiment report printed a better than expected reading of 44.5. This beat consensus of a score of 43.5 and but still marked the 6th consecutive month that the index fell. Remember, Germany is the largest economy in the euro zone and has put the euro zone on its shoulders throughout this financial meltdown. If the economic outlook in Germany is deteriorating, this could spell a world of trouble for the euro zone.

Meanwhile, we didn’t get any surprises from the consumer price index, which showed that prices rose by 0.9% year-on-year. This was right in line with forecasts. As I said yesterday, as long as inflation isn’t near the ECB’s inflation target of 2%, the prospects of a rate hike are pretty dim.

Despite the mixed data, what got the euro moving was good news coming out of Greece. That’s right, you read it correctly – good news from Greece! The debt-stricken nation avoided a credit rating downgrade from Standard and Poor’s, which let the Greeks release a sigh of release. You see, this indicates that the credit agency has confidence that Greece will be able to reduce their debt. Coupling this with increased risk appetite during the US session and boom – we got a euro rally!

No high impact data on deck today, so we may see more range like trading for euro pairs. However, if the EURUSD manages to push past its one month highs, it could set the ball rolling for a euro rally. Be careful trading out there my forex friends!

[PipDiddy]

Newsflash: The Greek debt drama is far from over! It seems like Germany is having second thoughts about providing aid to the heavily indebted fellow euro zone nation, causing the EUR to weaken against the USD and JPY.

Being the largest and richest nation in the euro zone, Germany is expected to provide most of the funds needed to help Greece. Yesterday, German President Angela Merkel said that governments should think carefully before supplying funds for the aid plan. Aside from that, she also proposed stricter rules that would lead to the expulsion of euro zone nations failing to fulfill the tenets of the Maastricht Treaty, which created the euro zone in the first place. Uh oh, Greece won't probably receive financial backing from big brother Germany anytime soon...

On the economic front, the euro zone is bound to release its current account balance at 9:00 am GMT today. This could show that the region's current account surplus widened from 1.9 billion EUR to 2.9 billion EUR in February. By 10:00 am GMT, the euro zone will release its trade balance, which could reveal that the surplus narrowed from 7.0 billion EUR to 5.1 billion EUR in January. Weaker than expected numbers could force the EUR to fall further.

[PipDiddy]

The EUR slipped again yesterday, losing by more than a hundred pips vis-à-vis the greenback and the yen. The fiber (EURUSD) fell and settled at 1.3608 from 1.3738. Similarly, the EURJPY also declined to 122.99 from 124.06.

Euro zone’s current account balance in January unexpectedly fell to -€8.1 billion (vs. €2.9billion consensus) from €2.3 billion. Much of the loss in this account could be attributed to the decline in the euro zone’s trade balance which slid from €4.1 billion to -€8.9 billion. These weak trade figures from the euro zone gave the EUR yet another blow.

Today (7:00 am GMT), Germany’s producer price index (PPI) will be released. Input prices in February are seen to have gained by a modest 0.1% on top of December’s 0.8% rise. The result, however, could just have a muted impact on the EUR since both Germany’s and the euro zone’s CPIs were already issued earlier.

At 7:45 am GMT today, ECB President Jean-Claude Trichet is set to speak regarding the bank’s crisis management framework at a conference organized by the Internal Market and Services Directorate of the European Commission. Traders will most likely tune in to his speech to find out how the ECB will handle the euro zone’s debt situation. A lack of a concrete plan could further weigh on the EUR.

[PipDiddy]

The euro turned out to be the biggest loser last week, giving up a large amount of ground against both the dollar and the yen. By the end of the week, the EURUSD found itself drowning below the 1.3500 handle while the EURJPY fell to 122.30.

Can you guess what caused the down move last Friday? Yep, it's all about Greece again. Currency traders found themselves exchanging their euros for dollars when uncertainty regarding Greece's bailout mounted. It seems that it is still unclear whether other countries in the euro zone would provide some form of financial aid to Greece.

On the docket today, at 3:30 pm GMT, is a speech by by ECB president Jean-Clead Trichet. With the ongoing Greek debt soap opera, the talk later could pose significant event risk. I'd keep an ear out during that time, just in case Trichet mentions something about Greece.

Looking further ahead this week, there are a bunch of reports that could catch the attention of traders.

On Wednesday, at 9:00 am GMT, the German Ifo Business Climate is due. The consensus is a reading of 95.8 for this month, slightly higher than the 95.2 reading seen last February. The survey tries to determine whether businesses feel positive or negative about euro zone's economy for the next six months. A rising reading indicates optimism among businesses, and could lead to increased economic activity in the future.

At the same time, euro zone will release its March purchasing managers' index for both the manufacturing and services industry. The manufacturing PMI is expected to print a reading of 54.2, while the services PMI is predicted to show a reading of 52.0. If the actual number comes in higher, the euro could find some buyers.

Lastly, at 10:00 am GMT, euro zone's industrial new orders report for January will come out. The report is typically used by traders as a leading indicator of production, because rising orders leads to increased activity of manufacturers. The forecast is for an increase of 2.1%, up from the 0.8% rise in December.

With the amount of economic reports coming out this week, and the uncertainty surrounding Greece, the euro could be in for a wild ride. We all know how sentiment can shift on a dime so stay on your toes!

[PipDiddy]

It looked like the EUR was headed for another day of losses, before it go it’s second win late in the US session to actually come out ahead. After trading as low as 1.3461, the EURUSD closed the day at 1.3559, a recovery of almost 100 pips!!

The euro zone received quite a shock yesterday, when Greece threatened to leave the Euro zone if nobody wanted to help them. “Not so fast, it ain’t that easy,” said ECB head honcho Jean Claude Trichet. And so, the Greek saga continues. As I’ve said before, Greece wants the help of its European brothers, but they are reluctant to extending a hand, saying that Greece doesn’t need their help.

First, they threaten to go to the IMF for help. Now they are saying that they will leave the (EZ) party altogether. Looks like the Greeks are desperate for attention. With no concrete plans yet to emerge, lets see how this plays out by the end of the week, when the EU meetings come to a close.

Once again, no high impact hard core data expected from the euro zone today. Tomorrow should be much more interesting, as German Ifo business climate index is due at 10:00 am GMT. The index measures how optimistic of pessimistic businesses feel about the state of the economy over the next 6 months. It is expected to print a reading of 95.8, just a notch higher than February’s score of 95.2.

Also due tomorrow are the euro zone manufacturing and services PMI reports, as well as the German and French versions. These reports are expected to show slight increases in their readings. If they come in much higher than expected, it may give the euro the boost it needs to overcome all the uncertainty over its debt problems.

[PipDiddy]

After pulling up and gasping for air, the EUR pairs resumed their dive immediately. The EURUSD and EURJPY seem to have found support around 1.3475 and 121.75 respectively but would these levels hold?

And the Greek debt saga continues! Recent developments show that France and Germany both support the IMF's involvement in providing aid for debt-ridden Greece. Well, Germany has given the IMF the thumbs up sign right off the bat but France, which has staunchly opposed reliance on the IMF, just changed its mind yesterday. With the go signal from euro zone's largest economies, would the IMF along with the EU officials be able to get this bailout show on the road or would there be more roadblocks along the way? Although the EUR seemed to enjoy these developments, its gains were tempered as more concrete plans are yet to be unveiled.

Yesterday's economic docket was nearly empty, save for the release of Belgium's NBB business climate report. The report printed better than expected results, with the index climbing from -7.0 to -3.6 in March. However, since the index is still in the negative territory, it indicates that economic conditions are worsening but at a slower pace this time.

Today is PMI day for the euro zone! Are you ready? Brace yourselves for the release of France and Germany's services and manufacturing PMIs starting 8:00 am GMT. In France, manufacturing conditions are expected to hold steady at 54.9 while the services industry is gunning for an improvement from 54.6 to 54.9. In Germany, manufacturing is projected to worsen from 57.2 to 56.9 while services could see an uptick from 51.9 to 52.2. Overall, euro zone's manufacturing industry could post a slight contraction to 54.1 while its services sector could show an expansion from 51.8 to 52.0.

Also due today is Germany's business climate report, which could reveal that business conditions improved from 95.2 to 95.8 in March. Watch out for the actual figure at 9:00 am GMT.

[PipDiddy]

The EUR found itself flat on its face against the greenback yesterday. The EURUSD slid and settled at 1.3312 from 1.3499. The pair could be heading down all the way to 1.3000 since it already broke the significant 1.3400 support. Stay tuned!

Euro zone’s, France’s and Germany’s March PMI figures were all released yesterday. The French manufacturing PMI rose to 56.3 from 54.9 while its services PMI slipped to 53.0 from 54.6. Germany’s numbers, on the other hand, were all upbeat with its manufacturing index reaching 59.6 from 57.2 and its services index also logging in a score of 54.7 from 51.9. The figures of the broader euro zone likewise registered some strong scores with its manufacturing PMI rising to 56.3 from 54.2 and its services PMI tapping 53.7 from 51.8. These numbers indicate that business activity in the most part of the euro zone is getting better.

On a separate account, Germany’s Ifo business climate index for the month of March also showed a promising result, rising to 98.1 from 95.2.

The news that weighed on more on the EUR, however, is Germany’s insistence that Greece, which is hampered by soaring debt, seek help from the IMF instead. Simply, Germany wants Greece to be “punished” for mismanaging their fiscal policies.

Later during the day, euro zone’s industrial new orders in January were also issued. Orders for that month unexpectedly declined by 2.0% after gaining by 0.8% in December. This drop in the account added some more selling pressure on the EUR.

Today (7:00 am GMT), the result of Germany’s GfK consumer confidence survey in April will be accounted for. The index is seen to slightly drop to 3.1 from 3.2.

At 8:00 am GMT, ECB President Jean-Claude Trichet will present the ECB’s annual report at the European Parliament, in Brussels. Volatility could be in high gear during this time as he may again spill some comments regarding Greece’s debt situation. Be on the lookout!

[PipDiddy]

The euro struggled to stay afloat in yesterday's trading session. The EURUSD, after hitting an intraday high 1.3386, found itself dropping again to close the US trading session at 1.3286. For the entire week, the pair has lost a grand total 244 pips. All this euro zone debt drama is really weighing down heavily on the EURUSD.

In addition to Greece's financial problems, economic data that came out yesterday wasn't quite up to par.

For one, a report on French consumer spending yesterday revealed that spending in February fell 1.2%, opposite the 0.4% rise initially expected. This was also on top of the 2.5% drop seen the month before. Retail sales in Italy too followed suit, ticking down by 0.5%. Finally, euro zone's M3 money supply – a report that measures the monthly change in the amount of domestic currency in circulation – fell by 0.4%, worse than the 0.1% decline consensus.

The only “good” news yesterday was that Germany's Gfk consumer climate survey for March remained at 3.2. Economists predicted that it would fall to 3.1. The Gfk consumer climate survey measures how confident consumers are about their present and future finances. A rising reading means consumers are getting more optimistic, while a falling reading indicates otherwise.

For today, keep an ear out for the ongoing European Summit. European Central Bank President Jean-Claude Trichet, together with the EU heads of states, are set to discuss economic conditions in EU as well as a possible solution for Greece's debt problems. If they end up in disagreement again, we could see the EURUSD tumble down again...