Daily Economic Commentary: Euro zone

[PipDiddy]

Whoa! The euro was looking like Spiderman the way it climbed over mountains of bad news yesterday! From its opening price of 1.2906, EURUSD started a strong early rally to hit 1.2992 before finally settling at 1.2942.

Investors were beaming with hope yesterday. It seems like they’re quite confident that worries over the euro zone’s banking sector will ease when the results of the stress tests are released this Friday.

In fact, they were so blinded by their confidence, that they didn’t even mind the heap of bad news that came out.

First off, Hungary, which is a member of the European Union, and the IMF failed to reach an agreement over bailout-loans. To make matters worse, Moody’s decided to get moody and downgraded Ireland’s credit rating from Aa1 to Aa2. But that’s not all! (Hey, this is starting to sound like an infomercial!) A German bank, Hypo Real Estate Holdings, was rumored to have failed the bank stress tests. Yikes!

Wait, we’re not done with the bad news yet! The euro zone got received another slap in the face when the current account revealed a downside surprise. Short of expectations of a narrower deficit at 3.0 billion EUR, the month of May recorded a 5.8 billion EUR deficit following the 5.6 billion EUR deficit in April.

Let’s see if the euro bulls can continue their rampage today as the German PPI report is scheduled for release at 6:00 am GMT. Analysts took out their crystal balls and foresaw a 0.2% uptick in the prices of goods sold by manufacturers in June, after witnessing a 0.3% uptick in May. High PPI figures usually get the euro bulls riled up since it can lead to future inflationary pressures as manufacturers pass on added costs to consumers.

Will this extend the euro’s wins or will yesterday’s bad news finally catch up with the euro. Tune in to find out!

[PipDiddy]

Oh, oh, oh, oh, oh, oh, oh… Uh oh-euro-oh my gosh! After opening at 1.29473 yesterday, EURUSD traded higher pop, pop, popping to its 10-week high of 1.3029. Then it started drop, drop, dropping to the intraday low of 1.2839 before closing at 1.2882.

The 0.6% increase in Germany’s producer price index for June may have been the dynamite that launched the euro on its bullish rally early on the day. According to Destatis, the price of goods sold by manufacturers in Germany was higher than the 0.2% consensus and May's 0.3% reading.

However, the bears decided to kick into high gear which made yesterday the second time this month for EURUSD to trade past the 1.3000 handle and see its gains vanish.

What could have caused the euro’s drop?

Well, first was Hungary’s lower than expected debt auction. Hungary held a sale for 3-month treasury bills and fell short of its 45 billion HUF (Hungarian forint) target by selling only 35 billion HUF. Yeah, they missed their target by 10 billion HUF! Not only that, they also have to pay a higher interest rate of 5.47% compared to last week’s auction which was only at 5.28%! Euro isn’t Hungary's currency but some analysts see its fiscal problems as a threat to the euro zone because it is a member of the European Union.

Investors may have also been reluctant to push EURUSD higher given that results of the EU stress test on banks is due this Friday. Many may have just settled with their profits fearing that European banks could be in deeper trouble than what the market thinks. Duhn, duhn, duhn, duhn!

We don’t have anything on tap for the euro today. However, you may want to tune in to Fed Reserve Chairman Ben Bernanke’s talk later as it may spur risk aversion that could once again send the euro screaming down the charts. If you really want to trade the euro, be very careful. Keep in mind that we’re only two days away from the stress test results!

[PipDiddy]

3…2…1…BLAST-the-euro-rally-OFF!!! Judging from yesterday’s price action, markets are expecting the European banks to crash and burn the EU stress tests even before the results take flight tomorrow.

EURUSD fell 146 pips from its intraday high at 1.2754, while both EURJPY and EURCHF plummeted by 160 pips and closed at 111.12 and 1.3409 respectively.

With all the fog surrounding the EU stress tests, could you really blame the traders for buckling up ahead of Friday’s explosion? Rumors were scattered all over the forex grapevine, from “leaked” stress test results to insider information from national banks. In fact, I wouldn’t even be surprised if they throw in a UFO from China to the circus!

Of course, it didn’t help that US Fed Chairman Ben Bernanke ignited his own fireworks yesterday after he revealed their grim projections on the US economy. The possibility of prolonged growth problems in the US sent a fresh wave of risk aversion in markets and sharply cut the demand for the risky euro.

We might see more action today when the series of manufacturing and services PMI from France, Germany, and the whole region is released at 7:00 am to 8:00 am GMT.

The reports are already expected to disappoint June’s figures, but worse than expected numbers just might plunge the euro further into the pip-deeps. Stay alert for all the action!

[PipDiddy]

Boom boom pow, baby! The euro’s back and booming! Yesterday’s price action saw renewed life in EURUSD as it zoomed up the charts. By the end of the US trading session, it had climbed 117 pips and perched at 1.2885.

What triggered the euro’s quick and strong ascent was the release of some highly positive flash PMI reports for the month of July. The manufacturing and services PMI figures for both Germany and the euro zone all marked significant improvements from their previous readings, going beyond all expectations in the process. It looks like the euro zone’s got a bit of kick left in it, eh?

But all of the euro’s gains yesterday may easily be erased as the ECB is set to publish the stress test results at 4:00 pm GMT. If the test’s outcome can somehow restore confidence in the euro zone by credibly showing a healthy banking system, we might see EURUSD finally break past the 1.3000 mark. Then again, it can just as easily find itself back down in the ditch if the results disappoint.

Oh! But before that, let’s not forget about the German Ifo business climate data due 8:00 am GMT! Analysts are expecting a 0.3 drop in the reading to record a 101.5 in July. Though this report will probably take the backseat to the stress test results, it may still be worth taking note of. After all, you could be in a bit of volatility if July prints a surprise.

Stay on your toes, my friends! It’s a make-or-break day for the euro!

[PipDiddy]

Euro bulls grooved to the tune of Gloria Gaynor’s "I Will Survive" as they ended the week victorious! Well, at least against most of euro’s counterparts.

EURUSD consolidated around the 1.2900 handle during the Asian session but rallied to the day’s high of 1.2966 when the London markets opened. It then tumbled to the day’s low to 1.2793, but the euro bulls regained their composure and settled the pair at 1.2195.

Investors were probably afraid and pip-trified of trading the euro last Friday, not knowing what to expect from the stress test results and with mixed economic reports from the EU. Let’s do a recap shall we?

First there were the disappointing reports from France and Italy that might have done the euro more harm than good. According to INSEE, French consumer spending fell short of the 0.3% increase in consensus when it printed a decline of 1.4% in June. Italians didn’t give the euro a boost either as retail sales fell 0.3% during the same month when in it was expected to post a 0.2% growth following the previous month’s -0.5% reading.

However, the Germans’ little-miss-sunshine attitude in July may have calmed investors and send the euro on its early rally. The German Ifo Business Climate index printed at 106.2 and overshot both the consensus which was at 101.5 and the previous reading of 101.8 in July. This optimism may signify that Germany’s economy may be in a better condition than what the market expects. Whoohoo!

And then came the stress test results. Duhn, duhn, duhn, duhn. The volatility at the wake of the release may reflect that investors didn’t know how to interpret the results. According to the CEBS, only seven of the 91 banks that went under review got big fat F’s on their scorecard and that only a combined capital of 3.5 billion EUR needs to be raised in order to save them from debt. That moolah is actually well below the forecast which ranged from 30 to 90 billion EUR! Not bad eh? Um, I’m not really sure. There’s a lot of speculation in the market whether or not the test was reliable enough to start with. But it seemed like it was good enough for investors, at least on Friday.

We don’t have anything on tap for the euro today. But keep an ear out for news coming from the euro zone. I have a feeling the market isn’t over with the stress test yet. Good luck on your trades!

[PipDiddy]

After the big waves caused by the EU stress tests last Friday, the euro floated near 1.3000 against the dollar yesterday. Too bad cautious trading prevented any sustained gains above the psychological mark. EURUSD ended the day at 1.2994 after opening at 1.2879.

No data was released from the region yesterday, so traders focused on the EU stress test results. Some say that the point of the exercise was to restore confidence, but others were concerned that the tests might have been too lenient on the banks.

In any case, the risk rally sustained by the stress test-friendly remarks given by European leaders like ECB President Trichet was enough to boost the euro across the charts.

Will the German consumer confidence report at 6:00 am GMT today help clear the fog on the region’s economic state, or will it add to the traders’ indecision? The index figure is expected to increase to 3.6 this month after the 3.5 figure last June, but a higher-than-expected number might provide additional support to the currency above the 1.3000 mark.

The annualized M3 money supply will also be released today at 8:00 am GMT. The currency in circulation and in banks is estimated to decrease by 0.1% after its 0.2% decline last May, but an upside surprise could imply more money for spending and investment. Tread (or trade) carefully!

[PipDiddy]

Try and try until you succeed! Yesterday, EURUSD once again failed at the 1.3000 level which has held the pair prisoner since May 2010. But it looks like it’s getting closer to breaking out of its cage! The pair settled just above the resistance at 1.3003, after reaching an intraday high of 1.3047.

Early in the day, the euro received what seemed to be the key to its cage locks when the GfK consumer sentiment index showed that sentiment across Germany has improved substantially. The index printed a rise from 3.6 to 3.9 in its July reading.

Analysts are attributing the optimism to a healthier labor market and the German team’s strong performance in the World Cup. Who would’ve thought Thomas Müller’s goals could have such an impact!

But the euro gave up much of its gains during the New York trading session. A mini wave of risk aversion ensued after the June US CB consumer confidence report revealed that confidence fell to it’s lowest level since February.

Later today, you’ll get a glimpse at July German CPI data. If analysts are right about their predictions, the report will publish a 0.3% increase in prices following the 0.1% uptick last month. Better-than-expected results could send the euro flying and release EURUSD from its prison. Stay on your toes because the figures could be released at any time!

[PipDiddy]

“Mayday, mayday! Abort 1.3000 mission!” The euro bulls failed to penetrate through the psychological handle for the fifth time this month as risk appetite retreated, and gave the bears the advantage in yesterday’s trading battlefield.

EURUSD rallied to its intraday high at 1.3043 after opening at 1.3002. But the bears attacked the pair during the New York session and caused enough casualties to erase the euro’s gains. The common currency ended the day at 1.2991.

What went wrong? Hmm, it may have been Germany’s disappointing inflation data that messed up the euro bulls’ battle plan. According to the country’s CPI figures for July, which printed at 0.2%, inflation is barely present. Analysts were expecting the bulls to get some ammo from it with the consensus up at 0.3% from May’s 0.1% reading.

Good thing Spain was somehow able to shield the euro from the attacks when it reported that its retail sales grew by 0.9% in June. Unlike the prior data from Germany, it was able beat the market’s forecast which was a 1.4% decline. Whew!

With another day out on the trading battlefield, traders are asking, “Will the sixth time be the charm for the euro bulls to succeed on its 1.3000 mission?”

Hmm, I really don’t know but some analysts think so. They are once again looking at Germany to provide the bulls some back up with its employment data. Since business and consumer confidence in the country has significantly improved, they are expecting that the number of people who claimed for unemployment benefits declined to 20,000 in June and bring down the unemployment rate to 7.6% from May’s 7.7% reading. At 7:55 am GMT, we’ll see if Germany will finally be able to step up today.

We also have Euro zone’s industrial, economic and consumer sentiment indices at 9:00 am GMT. Businessmen are expected to have been more optimistic in June than they were in May with the industrial index forecasted at -5 from -6 and economic index at 99.1 from 98. However, the consumers are not seen to have been any happier in June with the consensus being unchanged at -14 from May’s reading.

[PipDiddy]

What a sad way to end a month of wins! Though it made great gains in July, the euro finished the month on a sour note as it tasted defeat against most of the other major currencies. EURUSD slipped 46 pips from its opening price last Friday to close at 1.3032.

German retail sales worked against the euro as results showed that consumers spent 0.9% less in June, following a strong 3.0% uptick in May.

On the other hand, CPI flash estimate figures were in line with expectations, posting a 1.7% year on year increase in prices. Likewise, the unemployment rate published no surprises when it remained unchanged at 10.0%.

But that’s all in the past now… It’s time to move forward! We’ve got a new week and month ahead of us!

The hard-hitting reports start to come out on Wednesday, with the release of the monthly euro zone retail sales data at 9:00 am GMT. Analysts are expecting to see a 0.1% drop in retail sales in June, following the 0.1% increase in May. If results come in worse than expected, it could mean that consumers are beginning to feel the side effects of the euro debt crisis. Uh-oh!

Then the action picks up at 11:45 am GMT on Thursday when the ECB takes the stage to make its interest rate decision. Soon after that, at 12:30 pm GMT, the ECB will follow up with a press conference.

Though it’s widely expected that the central bank will keep rates at 1.00%, you may still be in for a bit of volatility as the ECB tends to wrap its interest rate decisions in comments about future policy. If analysts are correct, euro bears may have the upper hand since a dovish stance is expected in light of the euro zone’s economic problems.

Rounding up the week at 10:00 am GMT on Friday is the German industrial production data. The June edition of the report is slated to print a 0.9% uptick in the output of manufacturers, mines and utilities following the 2.6% increase seen in May. Can the report provide the euro with additional support by publishing an upside surprise? Find out at 10:00 am GMT!

[PipDiddy]

“Let’s go euro, let’s go!” The bulls cheered for the shared currency as it continued its parade up the charts yesterday. EURUSD kick started the week at 1.3065 and traded higher to hit a new three-month high at 1.3196. The pair then ended the day at 1.3180 in favor of the euro.

Thanks to the market’s improved risk sentiment, the euro was able to keep itself above the 1.3000 handle. This was evident in the rally in European stocks yesterday that may have somehow calmed investors of their worries about austerity plans hurting the region’s economic growth. Whew! But it wasn’t just that. Good ol’ better-than-expected figures from the region also made the euro all the more apiptizing to investors.

The euro zone manufacturing PMI rose to 56.7 in July from June’s 65.5 reading. The increase came as a pleasant surprise to investors as the market wasn’t anticipating the region’s manufacturing sector to have expanded from June. Boo yeah! Reports point out that the increase was spurred by the optimism of purchasing managers in Germany as the country’s PMI printed at 61.2 and right along the market’s target. France also stepped up to the plate as its PMI also rose in July to 53.9 from its 53.7 reading in June.

However, this doesn’t mean that it’s all gonna be sunshine and smiles for the euro bulls. No sir! While Germany and France’s manufacturing sectors displayed growth, other Euro zone countries show signs that they may have a tougher road to recovery. Yesterday we saw that the Italian PMI fell short of the 54.8 consensus by printing at 54.4. Ouch!

Well, that was yesterday. Let’s see if today’s reports will still make investors crave for the euro.

We have the region’s producer price index at 9:00 am GMT. After printing at 0.3% in April, the market expects it to have increased to 0.4% in May. An increase may not equal to an interest hike announcement from ECB President Jean-Claude Trichet on Thursday, but it could give him another reason to be more optimistic about the region’s economic outlook.