Daily Economic Commentary: Euro zone

[PipDiddy]

The euro’s scorecard in yesterday’s trading was as mixed as the reviews for Grown-Ups. It was able to snatch a 7 pip win from the dollar as EURUSD retreated from its intraday high of 1.2744 and ended the day at 1.2672. Against the yen and the Swissy it got rotten Piptato grades losing 62 pips and 131 pips to its respective counterpart. Boo!

Risk aversion might have caught up to the euro and cost it its spot in the bull limelight. It got some bull lovin’ at the expense of the dollar and the yen during the Asian and European sessions thanks to economic reports from Germany and Italy. Let’s take a look at them, shall we?

Business confidence in Italy improved in July with the ISAE Business Sentiment Index printing at 100.5 and beating the 98.5 forecast. The country’s retail sales report also brought some good news when it revealed that consumer spending was up 0.3% during the month, overshooting the 0.1% consensus.

Whoohoo!

But wait, that’s not all! Unemployment also fell at an annualized rate 8.4% in July following June’s 8.5% reading and the CPI hit the analysts’ target at 0.2%. Germany might have helped lure in some bulls when it reported that only 17,000 workers were unemployed in July which was better than the 20,000 forecast.

Sadly, some analysts say that the data for the entire region might not have been enough and gave traders more reasons to dump the euro. The unemployment rate for the entire region remained flat in July at 10%. It came in as the market expected like the euro zone HICP which printed at 1.60%.

Will the euro be able to make a comeback on the charts today? Hmmm, I think we have to stay tuned to today’s economic reports to answer that.

First on our schedule is the German retail sales at 7:30 am GMT and it is expected to come in at 0.5% for July, erasing its 0.3% decline in June. A few minutes after that, at 7:45 GMT, we have some manufacturing stats to sink our teeth into. The manufacturing PMI for August of Italy is expected to print at 53.5 , that of Germany is seen to be at 58.2 and for the entire region, it is seen to have remained steady at 55.

That’s all we have on tap later but also make sure you gauge the market’s risk sentiment. Good luck!

[PipDiddy]

“We’re on Patron pipquila, we’re drunk with pip-margarita” sang the euro bulls in yesterday’s trading they rock ‘n’ rolled on the charts. The euro snatched 131 pips from the dollar as EURUSD closed at 1.2803. Boo yeah! Both EURCHF and EURJPY also closed higher at 1.2996 and 106.46, giving the euro 129 pips and 162 pips respectively.

Boy did the euro bulls get pip-drunk! How? Well, just sit back and relax coz Pip Diddy’s here to give you the lowdown.

First there was the market’s improved appetite for risk that helped offset the disappointing German retail sales report. Yesterday, we saw that consumer spending was way off the 0.6% growth forecast when it printed a 0.3% decline in July. Good thing its previous reading was revised up to -0.3% from -0.9% and that might have cooled down concerns that came with its release.

Lucky for the bulls the PMI figures didn’t attract bears. Yesterday, we saw that purchasing managers in France were generally more optimistic in August with the PMI up at 55.1 following July’s 54.7 reading. Germany’s PMI remained flat at 58.2, but it came in as expected. Whew! The region’s PMI also reflected optimism, printing at 55.1 and beating both the consensus and its previous reading at 55.0.

Adding more fun to the bulls party was Chinese Premier Wen Jiabao, who said that China and western countries should chill out together to boost investor confidence in the euro and EU’s economy. Whoohoo! He said that he particularly wants to be buds with Spain because he wants to help it reel in its debt.

Some also say that bad US data helped the euro close higher against the dollar. Are we seeing a combo of fundies and risk appetite driving price action? Hmmm, probably.

So other than gauging risk sentiment, I guess its best for us to also tune in to today’s economic reports. Let’s take a look at what we have on tap for the euro, shall we?

First up at 5:30 am GMT is the French unemployment rate which is expected to have increased by 0.1% to 9.6% in July. Then at 7:00 am GMT we have Spain’s report on the number of unemployed workers. Bulls will be looking for a reading lesser than it July reading of 73,800 to help them hustle the euro.

At 9:00 am GMT we’ll have the region’s PPI report. It is expected that inflation pressures continued to ease with the forecast for the August down to 0.1% following July’s 0.3% reading. Along with that we also have the region’s GDP figures for the second quarter and analysts are expecting economic growth to have remained flat at 1.0%. But who knows, we could be in for a pleasant surprise given the strong GDP figures that France and Germany announced earlier.

Lastly at 12:30 pm GMT we have the ECB press conference. I think my bud, Forex Gump, mentioned this in his blog earlier this week. Anyway, the market is expecting that the central bank won’t be hiking rates. What you will need to watch out for is the accompanying statement by ECB Governor Trichet. If traders find him giddy enough with optimism for the euro zone’s economy, then we may just see the euro bulls continue their party on the charts!

[PipDiddy]

…And that makes it a hat trick! Fernando Torres of Liverpool could learn a thing or two from the euro, eh? Hah! While it ranged for most of the day, EURUSD recorded its third consecutive daily climb as it closed 19 pips higher at 1.2822.

As expected, the ECB announced yesterday that it has decided to keep rates steady at 1.00%. But during the press conference that followed, ECB President Jean-Claude Trichet expressed surprise that recent economic stats for the euro zone have been better than expected. Perhaps this is what prompted the ECB to raise its growth forecasts from 1.0% to 1.6% for 2010 and from 1.2% to 1.6% for 2011.

Still, Trichet believes the road to recovery won’t be a walk in the park. He added that the economic rebound will probably proceed at a moderate pace though there is still a great amount of uncertainty involved. Could this be the reason why the ECB decided to extend its emergency lending program?

Later today, the euro zone is scheduled to release its July retail sales figures at 9:00 am GMT. Analysts are predicting a 0.3% uptick for July after seeing sales unchanged in June. Look for the euro to weaken ahead of the release of the US’s NFP report (due 12:30 pm GMT) if results come in weaker than expected!

[PipDiddy]

The euro bulls boogied into pip-wonderland during Friday’s trading. Oh yeah! EURUSD closed 69 pips higher at 1.2891 and so did EURJPY with 85 pips at 108.85 and EURCHF with 130 pips at 1.3117. So what got the euro shakin’ its currency booty?

Well, first there were the relatively positive economic reports from the region. Last Friday we saw that the Italian and French services PMIs for August came in at 51.4 and 60.4 beating their respective forecasts which were at 50.0 and 59.9 respectively. The services PMI for the entire region might have also impressed traders when it printed at 55.9, overshooting the consensus which was only at 55.6.

Growth in the services sector in August contributed to the region’s overall PMI reading which printed at 56.2 which was 0.1 higher than what the analysts expected.

These might have been enough to offset the negative vibes brought about by Germany’s services PMI which came in at 57.2 and disappointed the 58.5 consensus, and the retail sales report which fell short of the 0.3% forecast for July when it only printed at 0.1%. Then again, the previous reading for the latter was revised to 0.2% from 0.0% so I guess it was all good in the hood.

There was also the positive comment of ECB member Mario Draghi who said that investment and consumption in Europe are already revving up. Holla! Another central bank member, Jose Manuel Gonzales-Paramo, also spoke on Friday. He said that liquidity measures must be phased out gradually along with normalization as banks are becoming more hooked to it. Hmm, I wonder this also means that the ECB thinks that banks are fit enough to stand on their own…

Looking forward, it seems like we have a relatively light week ahead of us for the euro. Today we only have the Sentix index at 8:30 am GMT. It is expected to show that analysts and investors are less optimistic on the economy this September than they were in August with the forecast down to 7.8 following its previous reading which was at 8.2. After thirty minutes, we’ll get the lowdown on the region’s trade balance figures for August. The market is expecting to see exports to have outpaced imports by 2.4%.

If the actual numbers come in better than expected then we may just see the EURUSD boogie past the 1.2900 handle so make sure you tune in to that!

[PipDiddy]

The euro was enjoying the market’s spotlight as it reached its three-week high at 1.2919 against the dollar when the bears started to rain on its parade. Doesn’t that just remind you of how Taylor Swift was so rudely interrupted by Kanye West during her speech in last year’s MTV Video Awards? Ugh!

Anyway, from there it was no love story for the shared currency as EURUSD ended the day 18 pips lower at 1.2875. Where did all the euro lovin’ go?

Well, first there was the confidence report from Sentix which showed that European investors and analysts are becoming less optimistic about the EU economy. The index came in at 7.6 which disappointed the 7.8 consensus and was lower than July’s 8.2 reading. Boo! Another reason why the euro was unable to hold on to its gains was because a number of bulls decided to just call it a day, took profit and left the shared currency hangin’. Tsk, tsk.

However, I have a feeling that the worst isn’t over for the euro. Earlier today, the shared currency weakened against its lower-yielding counterparts as a report highlighting the leniency of the EU stress tests drove away the bulls. Uh oh.. I think my buddy Forex Gump will be talking more about this on his blog for today.

Not all hope is lost though. The Finance Ministers of the European Union will meet later at 6:00 am GMT. Who knows, they may offer some words of comfort that could convince the bulls to spread some euro lovin’ again. Then at 10:00 am GMT we have the report on German factory orders. It is expected that the value of orders placed with German manufacturers was down 0.5% in August following its 3.2% reading in June. A better-than-expected figure may be enough for the euro to regain some of its losses against the dollar.

Good luck and be careful with your trades!

[PipDiddy]

Ouch, that's gotta hurt! EURUSD plummeted by almost 200 pips yesterday when the reports revealed that there was something fishy going on with European banks. And it doesn't help that the banks in question are from those countries with debt problems!

Wall Street Journal reported that some European banks understated their holdings of sovereign debt, causing many to think that the stress tests failed to report the real risk exposure of these banks. According to the Bank of International Settlements, an international organization for economic and monetary research, the actual debt holdings of some banks were more than twice as much as those reported in the stress tests. With that, many traders began to doubt the better-than-expected results of the stress tests, dumping the euro in the process.

What's next for the euro? Well, you might wanna check out Forex Gump's latest article about that!

Today, Germany and France, euro zone's top two economies, are set to report their trade balance. Germany's trade surplus is expected to widen from 12.3 billion EUR to 12.8 billion EUR while France's trade deficit is projected to swell from 3.8 billion EUR to 4.1 billion EUR. Kinda mixed, don't you think?

If those trade balance reports don't steer the euro in a clear direction, the German industrial production data just might do the trick. After suffering a 0.6% decline in June, industrial production is expected to post a 1.1% uptick for July. If the actual figure meets or beats the consensus, it could provide a bit of support for the euro. Still, I have a feeling that traders are still hesitant to buy up the euro in light of the recent revelations about European banks' debt holdings.

[PipDiddy]

Phew! Looks like the euro got the breather it needed yesterday, as it managed to stay afloat versus the dollar. After setting a new weekly low at 1.2665, the pair rose up and even gained 20 pips on the day from its opening price to end at 1.2714.

A day after the euro got put in the slammer after renewed concerns regarding the latest stress tests, the Committee of European Bank Supervisors came out and delivered a statement. Remember, it was CEBS that carried out the stress tests, so it was their reputations on the line! The statement was supposed to explain why the latest figures from the BIS differed from those that European banks sent in for the tests.

Unfortunately, the statement was an uber failure! Okay fine, I exaggerate a lil’ bit, but the statement did fail to explain what really happened. They just said that the way the BIS compiled their figures used different dates and methods, so it would be difficult to compare to their figures. The markets barely even paid attention to the statement!

In other news, German and French trade balance data pretty much hit consensus. France posted a deficit of 4.18 billion EUR, while Germany’s surplus widened to 13.5 billion EUR. Meanwhile, German industrial production figures were a little disappointing, printing growth of just 0.1% for the month of July. This failed to hit projections of 1.0% growth. Then again, you could always take the glass half-full approach and notice that it was still a nice improvement from the previous month’s decrease of 0.6%. Some growth is better than no growth!

Looking ahead, keep an eye, ear, nose - whatever you use to keep track of the markets - German CPI data and the ECB monthly bulletin due at 6:00 am GMT and 8:00 am GMT respectively. Take note though, that these reports aren’t generally regarded as having a high impact on the market. Aside from those reports, watch out for any more news regarding the recent concerns surrounding the stress tests.

[PipDiddy]

Chop chop! Euro trading was as choppy as an old school boot leg VHS tape, as the pair was all over the place. The end result in EURUSD was that it pretty much stayed within range, closing just 9 pips lower at 1.2704.

As I mentioned yesterday, the only piece of economic data being released from the euro zone was German CPI data. The report showed that annualized inflation stands at 1.0%, which was slightly better than the forecasted 0.9%. Still, it hardly caused a ripple in the markets as it shows that inflation remains subdued. It’ll take a lot more than 1.0% before our buddies over at the ECB get off their butts and raise the interest rate roof.

Meanwhile, we got a whole bunch of comments from ECB officials and if there was one thing they had in common, then well, I missed it! Their comments were all over the place, as they failed to deliver one coherent look on the future of the economy. This was probably a reason why EURUSD failed to move in one concrete direction.

For today, we’ve got tons of low tier data coming out from all over the euro zone. From France, we’ve got manufacturing and industrial production. From Spain, CPI reports. And from Italy, GDP data is on deck. Tons of reports that may cause minor volatility in the markets, which could help you catch a few pips here and there! Be careful though, as you may never know what news may be released and rocked the markets! Good luck today! Hope you end the week with a bang!

[PipDiddy]

“Work it harder make it better do it faster makes us stronger” After taking a beating from the markets for most of last week, the euro did a Daft Punk number last Friday on an improvement in risk appetite. EURUSD closed a hair away from its open price at 1.2711 after dropping to an intraday low of 1.2644. Meanwhile, EURJPY inched 54 pips higher to a 107.03 closing price.

So why didn’t the euro gain as much as the other risk-related currencies? Aside from lingering concerns on the region’s debt problems, last Friday’s production data showed mixed results. While French industrial production improved by 0.9% after declining by 1.7% last June, Italy missed it's 0.4% growth expectation by printing at 0.1%.

Will this week be any better for the common currency? ECB President Trichet will blast the week off for the euro when he gives his speech today after the 6:00 am GMT BIS meeting in Basel. Let’s hope he has some good news on the region’s banks!

Next, the ZEW reports tomorrow at 9:00 am GMT will take center stage, and better-than-expected results just might charge the euro bulls enough to extend the euro’s gains.

The CPI report on Wednesday at 9:00 am GMT and the current account on Friday at 9:00 GMT might also get the back-from-the-summer traders, as these reports can give us clues on local and international demand for the region’s goods.

[PipDiddy]

“Pip victory! Take it! It’s yours!” The currency bulls charged the euro to a victory across the charts yesterday after positive reports in the markets brought back risk appetite with a vengeance. EURUSD rocketed by a whopping 144 pips and closed at1.2876, while EURJPY capped the day off with a 34-pip win at 107.72.

It seemed that the markets got all pumped up when the European Union revised its 2010 growth forecasts. From its earlier 0.9% growth prediction, the growth in the region is now expected at 1.7%! Awesome!

But that’s not all! The currency bulls also got a lift from the better-than-expected economic data in China, as well as the ECB President Trichet’s optimism on the new banking regulations for world banks. This boosted not only the comdolls, but also the other risk-related currencies.

Will the markets keep the happy tune goin’ for the euro? Maybe the German ZEW economic sentiment report at 9:00 am GMT can tell us more. The data is expected to cool to a 10.7 index reading from its 14.0 figure last August, but a better-than-expected number might keep the euro chugging all the way to intraday highs.

The industrial production report will also be on the spotlight at 9:00 am GMT, and a higher figure than last August’s 0.1% decline can also keep the euro bulls charged for another trip up the charts.

The last hurrah of the day will come from Deutsche Bundesbank President Axel Weber when he gives his speech in Berlin at 3:00 pm GMT. Let’s hope he has good news to tell!

Happy trading, folks!