Daily Economic Commentary: Euro zone

[PipDiddy]

The euro headed downhill against the dollar yesterday as risk aversion took hold of the market again. After it had gapped up to start the week on a strong note, EUR/USD was sold-off all throughout the day to close the U.S. trading session 197 pips lower.

It seems like the plunging global equity markets due to Standard & Poor’s downgrade of U.S.’s sovereign debt took a serious toll on sentiment. It resulted in investors taking their money out of high-yielding instruments and transferring them to safe haven assets like the Greenback (ironically).

The only piece of data coming out of euro zone that could potentially have an impact on the euro is the German trade balance. Scheduled to come out at 6:00 am GMT, the report is expected to show that the trade surplus increased to 12.9 billion EUR from 12.8 billion EUR the previous month. Let’ see if the positive forecast on the report will be able to provide support for the euro.

[PipDiddy]

Euro pairs were off to a weak start during the Asian and London sessions but managed to squeeze in a few gains during the last few hours of the New York session. EUR/USD closed more than a hundred pips up from its 1.4210 open price while EUR/JPY landed above the 111.00 handle. Can the euro hold on to its gains today?

Euro zone didn't release any top tier data yesterday as risk aversion weighed on the euro pairs for almost the entire day. It wasn't until the end of the U.S. session, when the FOMC made their interest rate decision, that risk appetite returned and boosted EUR/USD and EUR/JPY. If you wanna know what the Fed had to say during their monetary policy statement, you should also read my U.S. economic commentary.

Today, only the French industrial production report is on euro zone's schedule. The report could show that industrial production ticked down by 0.1% in euro zone's second largest economy. Better than expected results could provide support for the euro so watch out for the release around 6:45 am GMT.

[PipDiddy]

Rumors are like wildfire; you are burned up before you know it! After its strong rally last Tuesday, the euro crashed and burned on the unfounded rumors that the SocGen, a large European and a major financial services company, was in financial trouble yesterday. While SocGen denied the rumors shortly after, the damage had already been done and the euro was unable to recuperate its losses. EUR/USD ended the U.S. trading session at 1.4178, more than 150 pips from its opening price that day.

Data released yesterday was of no help to the euro. The French industrial production report came in worse than expected at -1.6%. The German Final CPI, on the other hand, was in line with forecast and showed a 0.4% gain.

No tier 1 data today on euro zone’s economic calendar so the euro will most likely be driven by the market’s overall sentiment. Currently, traders seem to be extremely bearish on currencies that AREN’T considered safe havens. Keep an eye out on the dollar, the Swissy, and the yen folks, as they could continue to rally versus the euro today!

[PipDiddy]

The candlesticks on the daily chart of EUR/USD are beginning to look a lot like Cyclopip’s favorite striped Christmas sweater! Thanks to risk appetite, the euro was able to take home the bacon, ending the day with a 47-pip gain at 1.4228.

Risk appetite picked up yesterday with the rally in equities taking centerstage. It also might have helped that German Chancellor Angela Merkel announced the she would meet with French President Nicolas Sarkozy to address talks about the debt contagion spreading to France. Perhaps it gave investors hope that policymakers would soon come up with concrete and long-term solutions to address the debt crisis.

With that said, make sure you gauge market sentiment in today’s trading, ayt? If there are enough good vibes left, we may just see the euro end the week with a win.

Also, make sure you keep tabs on the roster of economic reports we have on tap from the Euro Zone today. At 5:30 am GMT, the French preliminary GDP report for Q2 2011 will be released and it is expected to print a 0.3% uptick. Meanwhile, the country’s CPI report for July is seen to come in at -0.2%.

Then at 6:45 am GMT, France’s preliminary non-farm payrolls report for is anticipated to show that the number of employed people grew by 0.2% during the second quarter of the year.

Lastly, at 9:00 am GMT, we’ll get dibs on Euro Zone’s industrial production report for June. Analysts have predicted that the report would show a 0.1% uptick.

[PipDiddy]

The euro may not have gained much against the dollar, but it did a hell of a job against the Swiss franc! It simply shrugged off last Friday's weak euro zone data and pushed EUR/CHF up 221 pips to close above 1.1000. Now THAT'S gangsta!

It looked as though the euro was about to have another bad day as French preliminary GDP was a little bit disappointing. Instead of recording 0.3%, GDP growth came in flat in Q2 2011. Apparently, a slump in consumer spending and dwindling exports had the French economy on the brink of contracting!

Surprisingly enough, despite the fact that the economy's performance was sub-par last quarter, the French labor market managed to chalk up awesome gains. French preliminary non-farm payrolls posted a 0.4% rise in Q2, twice what was expected!

Unfortunately, the joy from seeing that report was short-lived as euro-area industrial production data printed sad results later in the day. According to June data, production fell 0.7% month-on-month versus the forecasted 0.1% increase as 15 of the member states posted declines, 5 posted increases, and 1 remained stable. No doubt, this is one aspect of the economy that the euro-area will need to improve on if it wants to hasten its recovery.

Today's a good day to be a banker in Italy and France because both economy giants are celebrating bank holidays! However, this means that we'll have to wait until tomorrow for a taste of euro zone data. But don't worry, it'll surely be a treat because we've got German GDP on tap at 6:00 am GMT. Don't miss it, kids! It could be a big market-mover!

[PipDiddy]

Unlike what Jessie J suggested in her hit, it was all about the money yesterday in the markets. It certainly helped the euro! A risk-friendly market environment and a few positive reports from the euro region boosted EUR/USD to a high near 1.4500 before it settled with a 180-pip gain at 1.4441.

A series of mergers and acquisitions helped set for a risk-friendly environment in the Asian session yesterday, so traders found it easy to stock up on the euro during the London and the U.S. session. Of course, it probably helped the euro that the details of the ECB’s bond-shopping last week was more bullish than markets had expected.

In a report released yesterday, the ECB revealed that it bought 22 billion EUR of government bonds last week, a bit more than the expected 15-20 billion EUR figure. The higher-than-expected amount suggested that the ECB is determined to actively intervene against debt contagion especially in the Spanish and Italian economy.

Let’s see if the German GDP report can add up to the euro-bullish reports today when it is released at 6:00 am GMT. Market geeks are only expecting a 0.5% growth in the second quarter against the 1.5% rise in Q1, but a higher number might keep the euro rally going. Also released today are the French GDP report at 9:00 am GMT and the whole region’s trade balance report around the same time.

Good luck in trades today!

[PipDiddy]

"Oh, woe is me!" cried the euro yesterday as it chalked up another losing day against its counterparts. EUR/USD closed 33 pips below its 1.4442 open price while EUR/JPY found resistance at 111.00 and ended at 110.59. Meanwhile, EURCHF tried but failed to move past the 1.1500 level. Will the euro have another losing day today?

Poor economic figures dampened the euro's spirits during the start of the London session as Germany and overall euro zone released weaker than expected GDP readings. Germany grew by only 0.1% during the second quarter of this year, much less than the predicted 0.5% expansion, while euro zone grew by a mere 0.2%. That's dangerously close to negative growth, if you ask me! Could this be what Forex Gump was referring to when he said that Europe has new troubles ahead?

The euro found a bit of relief when the meeting between German Chancellor Merkel and French President Sarkozy yielded hopeful results. In order to ensure the stability of public finances in the region, the two heads of state resolved to create a new council that will meet at least twice a year and proposed a new tax plan. However, they decided against the creation of eurobonds, saying that these aren't the solution to the region's debt woes.

Today, euro zone is set to release their CPI and core CPI figures for July. Headline inflation is expected to stay steady at 2.5% while core inflation could rise from 1.6% to 1.7% on an annualized basis. Watch out for the actual figures due 9:00 am GMT because another round of weak data from the euro zone could hurt the euro.

[PipDiddy]

It was a topsy-turvy day for the euro, which was simply all over the place in yesterday's trading. EUR/USD spiked to as low as 1.4325 at the start of the London session, before recovering on improved risk appetite. The pair then soared to as high 1.4518, before giving back some of its gains to close at 1.4435, marking just a 26 pip gain on the day.

The main reason why the euro recovered midday was due to an improvement in sentiment, as well as traders warming up to the ideas brought about during the meeting between Sarkozy and Merkel the day before. The question is, how long can this sentiment keep up?

In other news, euro zone headline CPI figures came in as expected at 2.5%. Interestingly, core CPI came in much lower than anticipated, printing at 1.2%. This was a major drop from last month’s 1.6% figure, and the expected 1.7%. This indicates that without including food and energy, prices are actually dropping. This would further support the notion that the ECB should hold out on any rate hikes in the meantime.

No biggies on the docket today, so it is possible that we’ll see more consolidation in today’s trading. Good luck trading homies!

[PipDiddy]

The euro got heavily beaten by the lower-yielding currencies during yesterday's trading as risk aversion loomed over the markets. EUR/USD tumbled from a high of 1.4452 to a low of 1.4271 before closing at 1.4336. Meanwhile, EUR/JPY closed 25 pips below the 110.00 handle. Keep reading to find out whether we're in for more euro weakness today.

Euro zone didn't release any economic data yesterday, leaving euro pairs vulnerable to risk sentiment. Unfortunately for the euro, traders got the goosebumps from Morgan Stanley's downgrade of global economic growth and flocked to the safe-havens. It didn't help that Morgan Stanley specified that the U.S. and Europe were both dangerously close to a recession, just like Forex Gump hinted in his recession infographic the last week!

What's worse is that the U.S. printed weak economic data during the U.S. session, confirming that major economies could really be in big trouble. Don't forget to drop by my U.S. economic commentary to see which reports turned out to be disappointments.

For today, only the German PPI is on tap from the euro zone. The report could show a 0.2% uptick in producer prices for July, up from the 0.1% increase seen last June. Weaker than expected results could push the euro even lower so watch out for the actual data at 6:00 am GMT.

[PipDiddy]

How's THAT for resilience! After taking a bad beating on Thursday, the euro bounced back to post respectable gains against its major counterparts. EUR/USD closed 57 pips higher on the day at 1.4395 after hitting a low of 1.4259, while EUR/JPY rose 36 pips to finish at 110.11. But was this just a dead cat bounce?

Though it didn't really do much to rile up euro bulls, German PPI came in surprisingly positive. Producer prices increased 0.7% month-on-month in July, much higher than the 0.2% rise that traders were expecting to see. Year on year, this translates to a solid 5.8% increase! Of course, if PPI continues to climb at such a strong pace, it could result in a higher CPI, which in turn makes a good argument for further monetary policy tightening.

For the week ahead, we've got quite a number of reports to keep an eye on.

Tomorrow between 7:00 am and 8:00 am GMT, we'll practically drown in reports as French, German, and euro zone manufacturing and services PMI data will be rolled out. Expect to see a lot of red as forecasts say we'll probably see softer figures all across the board.

Then at 9:00 am GMT, prepare to feast your eyes on the ZEW economic sentiment report. The euro zone version of the report is expected to ease from -7.0 to -6.2, while the German version is anticipated to worsen from -15.1 to -24.6.

Wednesday picks up with more German data as the German IFO business climate index is due for release at 8:00 am GMT. However, this report isn't expected to cheer anyone up as it'll probably downgrade its reading from 112.9 to 111.3 if analysts are to be believed.

In any case, the key to trading the euro this week is to remain flexible. As we saw last week, it was all over the place, rising strongly one day only to come falling sharply the very next. Some say last Friday's rally was nothing but a dead cat bounce and that the euro remains vulnerable to concerns about European banks and the global economy. That being said, I'm inclined to believe that the euro could be in for an extended slide if risk appetite doesn't improve significantly this week. Good luck, kiddos!