Daily Economic Commentary: Euro zone

[ForexGump]

Strong data coming out of euro zone gave risk taking more fuel as the EUR soared against safe-haven currencies such as the USD and the JPY last Friday. It began the day at 1.4255 and closed the week a couple of pips above the 1.4300 handle at 1.4336.

The optimistic data came from the purchasing managers’ index for manufacturing and services all over euro zone. For instance, the German Flash manufacturing PMI unexpectedly printed 49.0 (vs 47.1 forecast) while the services PMI came out at 54.1 (vs 48.8 forecast). This is the sixth consecutive month of improvement in the PMI numbers, indicating that recovery is close.

For today, euro zone’s report on New Industrial Orders for the month of June is due. The forecast is a 1.7% gain. If this holds, it would be the first growth in new industrial orders since September 2008.

Looking further ahead the week, expect to see some significant economic releases. The July German Ifo Business Climate, which is due for release on Thursday 6 am GMT, is predicted to jump to 89.1 from 87.3 indicating that business conditions have somewhat improved. Meanwhile, the German preliminary Consumer Price Index set for release on Thursday will also be closely watched. Deflation fears have been plaguing prospects of economic recovery in the euro zone as of late and the report could provide further insight on this matter. It remained flat at 0% last month and economists expect the same result in August.

It seems like data coming out this week have quite optimistic forecasts. Will investors be pricing in their expectations early and give risk another healthy run? Will the EURUSD pair attempt to set new yearly highs? We’ll have to see where risk sentiment takes the pair this time around!

[ForexGump]

With little economic data being released everywhere, we pretty much just saw range bound motion across the board, making for a pretty boring Monday. The EURUSD bounced between a tight 80 pip range, closing the trading day at 1.4304.

Euro zone industrial orders picked up 3.1% from May to June, beating forecasts of a 1.7% increase. This marked the largest increase in 19 months. This was another sign that the recession is nearing its end. Still, there are some who question this growth and attribute it to government stimulus plans. Lets see if the things continue to pick up in the coming months. If not, will we see the European Central Bank take more action?

We will probably see more movement in the market today, as more data will be released across the globe. From the Euro zone, we have the German Final GDP q/q report on deck. A report 2 weeks ago indicated that both Germany and France were out of recession. Germany posted growth of 0.3% in the past quarter. Also due today at 1:00 pm GMT is the Belgium NBB Business Climate index. The index is expected to post a reading of -19.7, an improvement from last month’s reading of -22.8. Take note, 0 is the score that separates improving and worsening conditions. As the index crawls towards 0, it is reflective of growing sentiment that things are slowly getting better.

Tomorrow at 8:00 am GMT, the German IFO Business Climate report will be released. Forecasts are for a score of 89.1, an increase from the previous month’s score of 87.3.

[ForexGump]

Ho hum, what a slow day for the EUR... Both EURUSD and EURJPY rocked back and forth within their respective ranges, chalking up a few gains at the end of the day. Only a couple of economic reports were released yesterday, namely the German final GDP and Belgium NBB business climate.

Germany confirmed their exit from the recession after reporting a final GDP of 0.3% for the second quarter. This was in line with the preliminary GDP released earlier this month. Looking at the components of the final GDP, notable improvements were seen in private consumption, capital investment, and exports. However, much of the growth was a result of government spending and stimulus programs. The question now is whether this growth would be sustained even after the stimulus programs are withdrawn.

Belgium reported an improvement in business confidence as the National Bank of Belgium's business climate index climbed from -22.8 to -18.2. This was better than the consensus at -19.7. Still, the index lingers in negative territory, which means that market conditions are worsening.

For today, we'll be looking at the results of the German Ifo business climate survey. The reading for August is projected to land at 89.1, coming from 87.3 in July. This report is due at 8:00 am GMT. A report on German import prices is also due today but is expected to have minimal impact on the EUR price action. Prices of imports in Germany are looking at a consensus of a 0.7% decline this month. Unless these reports from Germany post stellar advancements, we could be settling in for another slow day for the EUR...

[ForexGump]

The EUR continued its ascent against the GBP in yesterday’s trading. The uptick in the German Ifo business climate, however, was not enough to give it a wholehearted support as it closed the day on the losing end versus the JPY and USD.

The German business confidence index came in better than expected at 90.5 in August from last month’s 87.4 reading. It was only seen to reach 89.1. The latest score is its highest mark since September of last year. The surprise upside in the figure indicates that the economy is likely to get even better.

The EUR jumped against most of the other majors following the report. Though, it was unable to protect its gains against the USD and JPY due to the mixed economic results in the US.

The GfK German Consumer Climate for September will be reported at 6:10 am GMT. It is seen to improve to 3.8 from 3.5. Any rise in the figure would confirm yesterday’s business confidence results and would likely give boost to the EUR yet again.

The German preliminary CPI for the month of August will also be released some time during the day. The figure is seen to remain flat at 0.0%. However, it is not impossible to see a surprise rise in the number given the recent better-than-expected German data. Such could also give the EUR some lift.

[ForexGump]

The plethora of data released during the Euro session failed to create any decisive movement on the EUR/USD pair yesterday. It seemed the day was going to be a bore... until the afternoon US session came rolling along.

Just minutes after the afternoon session began, the EUR managed to stage a furious rally versus the USD where it climbed all the way to 1.4400 before finding resistance. It closed the day strongly at 1.4364.

In any case, it seems that consumer confidence in the euro zone has picked up. The August Gfk German consumer climate survey which gave a reading of 3.7, slightly lower than forecast but certainly an improvement from July’s revised down figure of 3.4. That was the highest reading since June 2008!

The German final consumer price index also shared the same optimistic tuned as it reported that the average prices of goods and services purchased by consumers was revised up to 0.2% from a flat reading of 0%.

The M3 money supply was a downer though. It measures the total amount of euros in circulation in the economy and deposited in banks. It only rose by 3% and not 3.3% like economists were expecting.

Today, expect to see EuroStat’s survey on consumer confidence at 9 am GMT. The survey uses a positive/negative scale to determine how consumers feel about the economy. Readings below 0 means consumers are generally pessimistic while readings above 0 indicate otherwise. The consensus is at -21.

For now, it looks like 1.4400 will be the line in the sand... The last bastion of resistance... The final doorway that stands between here and the unknown... Okay, I’m getting a bit too creative there! Let’s see the last trading day brings as investors close shop for the weekend!

[ForexGump]

The euro cried cncle to end the week, as it fell against the USD, JPY and GBP. The EURUSD closed the week at 1.4301, while the EUR lost against the GBP for the first time in 8 days. Will the EUR bounce back today?

The European Commission released a report last Friday that indicated that consumer confidence rose in July, as the index had a reading of 80.6. At the same time, a separate report measuring consumer confidence by EuroStat also report that confidence rose in July. Their index rose to -22 - less than expected but still an improvement from the previous month's reading of - 23. No surprises here - after all, we’ve been seeing some good news as of late.

Today, on the economic menu, we have the CPI y/y report. It is expected that inflation rose to show that prices have only fallen by 0.4% from a year ago. Last month, the report printed inflation to be at -0.6%. It is scheduled for release at 10:00 am GMT.

For tomorrow, we have some German data on deck, with retail sales and unemployment change info to be released at 6:00 am and 7:55 am GMT. On Wednesday, the revised Euro zone GDP q/q report is due. The last report showed that the Euro zone contracted by just 0.1% in the past quarter, carried on the strength of Germany and France. Will this week’s report show a revision?

[ForexGump]

The EURUSD still seems to be enjoying the consolidation mode as it tumbled down for most of the day before spiking up upon the release of stronger than expected Chicago PMI.

Consumer prices in the euro zone declined less than expected as the region’s CPI recorded a 0.2% slide in August. After posting a 0.7% downturn in July, price levels in the euro zone were projected to record a 0.4% slump in August. The recent figure suggests that inflation may accelerate as the global economy makes its way out of the recession, pumping up demand for and the price of crude oil and other commodities.

In Italy, CPI was also better than expected as it recorded a 0.4% increase ahead of the consensus of a 0.2% rise. Retail sales, on the other hand, fell by 0.4% in June against the forecast of a 0.2% uptick.

Germany is set to release retail sales and unemployment change data today. German retail sales, which are due 6:00 am GMT, are expecting a 0.7% increase in July after posting a 1.3% decline in June. Data on unemployment change, which will be released at 7:55 am GMT, is projected to post 33K in job losses for July. Euro zone's final manufacturing PMI is also due today although this should have a minimal impact on the EUR price action.

[ForexGump]

The EUR tripped and fell in yesterday’s trading despite some good economic results in both the euro zone and the US. The EUR fell to 1.4218 from 1.4337 against the USD. It also closed down to 132.04 from 133.39 versus the JPY.

The German retail sales in July came in line with expectations at 0.7% after falling by 1.3% in June. The latest reading is its first gain in 3 months as lower prices and increased optimism in the markets enhanced consumer spending. Though, the rising unemployment in Germany plus the low inflation would tend to dampen future spending. Nonetheless, a rise in the figure should reflect positively on the economy and the EUR at least in the short term.

The number of unemployed people in Germany fell by 1,000 to 3.46 million after already improving by 5,000 in the month prior. It was initially seen to rise about 33,000. Germany’s unemployment rate, as a result, remained unchanged at 8.3%, contrary to the 8.4% prediction. However, some of the short term job contracts will expire in the coming months which may cause the unemployment to rise again. Nevertheless, the recent improvement in the figures adds further evidence to a recuperating economy. This also helps the political cause of Chancellor Angela Merkel since she is due to run for national elections on September 27.

Despite the development in the German labor market, euro zone’s unemployment rate still upped to 9.5% from 9.4%. This level is the euro zone’s highest jobless rate since 1999. The number of jobless people in the euro zone increased by 167,000 in July to 15.09 million despite the massive amount of money poured by governments into the economy. Hence, the falling prices and inflation expectations brought about by the lack of demand could prompt the ECB to hold its rate at the current record low level for an extended period of time.

The EUR fell following the release of the euro zone’s unemployment report. It further slid during the US session despite the positive US ISM manufacturing PMI and pending home sales. Investors thought that the stock market already reflects the positive economic data and is already overbought. This led to a broad-based selling of stocks which in turn sent investors back to the safety of the USD and JPY.

Today (9:00 am GMT), the euro zone’s revised GDP for the second quarter will be released. The figure is expected to remain the same at -0.1%. Barring any surprises, the EUR may just be range bound at least in the Asia and euro sessions. However, the EUR may continue to slide if the selling pressure persists during the US session.

[ForexGump]

"Never gonna give you up.. Never gonna let you down..." sang the euro bulls yesterday as they refused to let the EURUSD break through 1.4200 and trend lower. In fact, the EURUSD pair managed to take back some lost ground from the sharp drop last Tuesday.

Later, expect to see the report on euro zone retail sales for July at 9 am GMT. It measures the monthly change in retail purchases by consumers. The forecast is a 0.2% growth, an improvement from last reporting period’s 0.2% fall.

The European Central Bank’s interest rate decision is also on the docket today but the event could prove to be... well, a bore. The ECB has already kept interest rates unchanged at 1% for four months straight already and the expectation today is no different. Interest rates would probably be kept steady. Experts and analysts also speculatean expansion of the bank’s quantiative easing measures would be unlikely. Still, it would be prudent to expect the usual volatility spikes upon the release. The interest rate decision will be announced at 11:45 am GMT followed by a press conference held by ECB President Jean-Claude Trichet at 12:30 pm GMT.

[ForexGump]

The EUR attempted to push higher yesterday during earlier sessions, but lost its legs midway through the US session. The European Central Bank rate decision turned out to be a non-event and EUR pairs ended up staying within range for the most part.

The ECB, as expected, decline to cut or raise interest rates, keeping the base rate at 1.00%. ECB president Jean Claude Trichet said that while consumer and investor confidence is improving, recovery would still be uneven. Once again, we have another central bank figure expressing optimism and caution at the same time. Trichet also said that the bank upgraded its forecasts for growth, expecting a decline of anywhere between 3.8% and 4.4% this year, and potential for growth as high as .9% next year. I expect that the ECB will refrain from raising rates until they see other more nations within the bloc showing improvement similar to what Germany and France are experiencing right now.

In separate reports, Euro zone retail sales showed a surprise, printing that sales fell by 0.2% in July. It was expected that sales would rise by 0.2%. This could be a sign that unemployment fears are still putting a drag on spending.

Today, at 6:50 am GMT, Jean Claude Trichet is set to deliver a speech at the Watchers Conference in Frankfurt. Watch out for any surprise statements as he is after all, the president of the ECB –what he says can potentially disrupt the markets!

Also, the G20 meetings will be starting today. I’ll be sure to update you on any significant news that comes out from these meetings.