Daily Economic Commentary: Euro zone

[PipDiddy]

We got mixed results from the euro last Friday. While it came out on top and earned 115 pips in its battle against the dollar, it marked its second straight loss against the yen and lost 12 pips. What can we expect from it today?

We didn't really have any hard stats to work with last Friday, but nevertheless, traders had plenty to think about.

For one, EU Commissioner Rehn was spreading rumors that Greece and its creditors were close to finalizing a deal and that things would be ironed out by the weekend. Right now, we're still waiting for solid confirmation that they've reached an agreement. Multiple sources say that a deal is definitely in the works, and many say it might be announced by today's summit.

What summit, you ask? I'm talking about the EU summit today, of course! Many are expecting big announcements from the first summit of the year. Investors want to see what sort of safety mechanism EU leaders have in mind, but many believe they'll be focusing on economic growth. I was talking to some of my homeboys and they said that they believe some funds may be used to generate jobs and finance small businesses.

Though the summit probably won't focus on Greek debt issues in particular, it could serve as a prime venue for big announcements, so be sure to stay on your toes today, fellas!

[PipDiddy]

Was that a drive-by shooting we just witnessed? With risk aversion coming back in force, the euro got killed in yesterday’s trading action. EUR/USD dropped a solid 100 pips to finish at 1.3130, while EUR/JPY closed at 100.24, down 120 pips from its opening price.

So who was the culprit this time around? No other than our fabulous European leaders!

No progress was made at the EU summit, as European leaders failed to come up with solutions to handle Greece’s ongoing debt problems. It seems as if European leaders are content to wait until Greek officials succumb to market pressure and accept the harsh deals that private bondholders have currently put on the table.

With the lack of any new developments, the markets were largely disappointed, and this helped the euro tumbled across the charts.

There was one bit of good news yesterday though, as Italian bond auctions did relatively well. Italy was able to sell 7.5 billion EUR worth of bonds, which was near their maximum target. Lately, bond auctions have done relatively well, despite all the concerns about a potential Greek default and the effects of contagion. I suggest keeping tabs on the bond auctions, as a rise in yields or the lack of participation may be an early signal of more troubling times to come.

For today, we’ve got German retail sales and the German unemployment change reports coming out at 7:00 am GMT and 8:55 am GMT respectively. Retail sales growth for the past month is expected to print at 0.9%, while another 8,000 jobs are expected to have been added to the German economy last December. If these reports print much better-than-expected, it could give the euro the boost it needs to erase some of yesterday’s losses.

[PipDiddy]

Red was the color of the day yesterday as most economic reports released from all over the globe failed to meet expectations. Because of this, EUR/USD was hit hard by risk aversion and posted its second straight day of losses. The pair closed the U.S. trading session at 1.3080, 50 pips lower from its opening price that day.

In euro zone, the German retail sales report came in with a 1.4% decline, much worse than the 0.9% decrease initially expected. Meanwhile, the French consumer spending report showed a 0.7% fall, opposite the 0.3% increase forecast.

The only “good” news that was published from the region was the German unemployment change. It showed that the number of unemployed people fell by 34,000, much higher than the 8,000 figure consensus.

Today, the only major report that will be released from euro zone is the flash consumer price index estimate. The market is expecting a 2.7% rate year-on-year, which is slightly lower than the previous month’s 2.8%. The actual figure will print at 10:00 am GMT.

[PipDiddy]

“Up, up, here we go, go!” With an abundance of risk appetite to fuel its jet packs, the euro flew up the charts, gaining against the dollar and the yen. EUR/USD closed at 1.3152, up 72 pips from its opening price, while EUR/JPY finished at 100.25, posting a 52 pip gain on the day.

The only piece of “hard” data that was released yesterday was CPI flash estimate. As expected, the figure printed at 2.7% year-on-year, which is near the high end of the ECB’s target. Still, this release didn’t have too much of an effect on euro trading.

So what caused the euro’s swagger yesterday?

First, we saw better-than-expected Chinese PMI manufacturing figures, as it printed at 50.5 (expectations were at 49.6). This means that instead of shrinking slightly, Chinese manufacturing industries are expected to grow a little bit in the near future. This boosted risk-taking in the markets, as it lessens the chance of an economic slowdown this year.

Second, European bond auctions went fairly well yesterday, as Italian, Spanish, and Portuguese yields all dropped. Portugal was able to sell 1.5 billion EUR worth of bonds, with 3 month bill yields coming in at 4.068% (down from 4.346% in the previous auction), while 10-year bond yields printed at 14%, which was way below the 16.58% high.

Thirdly, it seems that we’re actually seeing some optimism out of the Greek debt deal talks, as Greek Finance Minister Venizelos is just “one step away” from working out a deal with private bondholders. Well, the truth is, they are running out of time, so any sign of progress would probably be taken as a positive!

Adding these all together, and it was a rather good day to be a euro bull. Congrats to those of you who bagged some pips. To those of you who were less foruntate… there’s always today!

No hard data lined up today, but as we saw yesterday, its all about risk sentiment baby! Keep an eye out for any developments regarding the Greek debt situation, as well as signs of life from the equity markets. If we continue to hear more good news, it may be time to hop on that long euro bandwagon!

[PipDiddy]

Despite it being already the month of love, the euro didn't get any lovin' from traders in yesterday's trading. EUR/USD failed to trade past the 1.3200 handle and dropped to an intraday low of 1.3085. The shared currency was able to pare some of its losses during the New York session but it still fell short of a win by 7 pips, closing at 1.3145.

The lack of any significant new developments in the euro zone and the absence of economic data might have turned off investors from buying the euro yesterday.

Greece is still negotiating with its private creditors for a debt deal. Meanwhile, German Chancellor Angela Merkel tried to convince China yesterday to invest in the EFSF, saying that the country (as well as everyone else) will want the debt crisis to be solved. Chinese Premier Wen Jiabao seems open to the idea but we'll have to wait and see if China does in fact keep its promise.

As for economic data, we only had the PPI report for December which showed that producer prices declined by 0.2% in the region. But don't fret! Perhaps the reports we have today will be able to boost the euro. (That is, if they come in better-than-expected.)

At 9:00 am GMT, the euro zone final services PMI for January will be released and it is expected to match its previous reading at 50.5. Then at 10:00 am GMT, the retail sales report for December will be on tap. Consumer spending is seen to have increased during the month by 0.4%.

Other than that, be sure you also keep tabs on the much-anticipated NFP report from the U.S. as it would most probably affect the price action on EUR/USD. Check out Forex Gump's article to better anticipate the report. Good luck!

[PipDiddy]

With risk appetite dominating the markets, who needs to watch the Super Bowl to see some action? Okay, maybe it’s not as exciting as watching The Big Game, but the euro managed to lock in some pips thanks to a positive jobs report in the U.S. EUR/USD traded on a 100-pip range before ending the day at its open price, but EUR/JPY rose by 47 pips to 100.34.

Aside from rescheduling a couple of Greece-related meetings to later this week instead of Monday, the euro zone also provided mixed reports last Friday. The region’s final services PMI slipped a bit to 50.4 from its 50.5 reading, while its retail sales fell by another 0.4% in December.

Of course, the kicker in the euro’s strength was the positive NFP report released from the U.S. Don’t believe me? Read all about it in my USD write up!

Let’s see if the euro can get any support from this week’s economic reports. The week will start off with the Sentix investor confidence report at 9:30 am GMT and Germany factory orders data at 11:00 am GMT, but it will be followed by other big reports like the German industrial production report tomorrow at 11:00 am GMT; the ECB interest rate decision on Thursday at 12:45 pm GMT, and the ECB press conference at 1:00 pm GMT.

Good luck in your trading this week!

[PipDiddy]

Boy, does the euro know how to stage a comeback! The currency traded lower for the most part of the day with EUR/USD tumbling to its intraday low of 1.3028 after opening at 1.3120. However, the euro started to rally during the New York session and closed the day with an 11-pip gain at 1.3131.

Greece still hasn't come into terms with its creditors regarding a debt deal and I have a good feeling that this weighed heavily on the euro yesterday. But with the currency still trading near its highs implies that investors have high hopes that officials will come up with a last minute agreement. Of course, it may have also helped the currency that the reports released from the euro zone yesterday came in better than expected.

The Sentix Investor Confidence index fore February came in at -11.1, a more modest decline than the -14.8 reading that markets were eyeing. Germany's factory orders for December also topped expectations for a 0.7% uptick when it printed at 1.7% and erased part of its 4.9% decline in November.

With that said, you may want to keep tabs on the German industrial production report due later today at 11:00 am GMT. It is expected that the value of output produced by the industrial sector contracted by 0.1% in December 2011. A figure better than the forecast may give the euro its much-needed support to stay above 1.3000, at least for today's trading.

Also be sure to keep an ear out for updates regarding Greece. From what I've heard, it seems like a few market junkies are expecting the government to announce a default soon. Yikes!

[PipDiddy]

I’ve got to hand it to the bulls – any time they hear optimistic news regarding the Greek debt deal, they would immediately show support for the euro. EUR/USD closed the U.S. trading session at 1.3253, a solid 121 pips higher from its opening price that day.

The “good” news came from Euro Group leader Jean-Claude Juncker. He went on the wires saying that Greece cannot be forced out of the euro zone, and on the unlikely occurrence that Greece exits, the costs associated with it would be too great.

Juncker’s statement echoes that of German Chancellor Angela Merkel’s, where she says that a Greek default is unacceptable. There was also rumors that went around that Greek officials are creating a final draft of the debt deal.

Economic data disappointed though. The German Industrial Production report came in with a 2.9% decrease, significantly worse than the 0.1% decline initially anticipated.

The only event scheduled on euro zone’s economic calendar today is the release of the German Trade Balance. It is slated to print a 14.1 billion EUR surplus, which is slightly lower than the 15.1 billion EUR surplus seen the previous month. A falling trade balance is normally considered bearish for the euro.

[PipDiddy]

Wow, talk about some consolidation going on! The euro barely budged against the U.S dollar yesterday as EUR/USD was stuck around the 1.3250 area. Meanwhile, EUR/JPY was able to edge a bit higher as it closed 35 pips up from its 101.75 open price.

There weren't any major economic releases from the euro zone yesterday, as euro pairs moved cautiously ahead of today's ECB rate decision. Also, euro traders are awaiting the approval of Greece's austerity measures to see whether the government could finally secure the debt deal and receive more bailout funds. Another issue up for discussion is whether the ECB would be willing to sell its Greek bond holdings at a lower price or not.

Make sure you keep an eye out for the ECB rate statement at 12:45 pm GMT today. The central bank is expected to keep rates on hold at 1.00% and highlight the bright spots we've been seeing in the euro zone economy recently. If ECB head Draghi sounds a tad more optimistic than he did in their previous rate statement, the euro could break out of consolidation and push for new highs.

[PipDiddy]

For the second straight day, EUR/USD was unable to pick a direction. In fact, it was so directionless that it practically didn't move all day! It simple traded within a tight range and bounced between resistance at 1.3320 and support at 1.3215.

The European Central Bank (ECB)'s rate announcement failed to make an impact on the pair because it pretty much came in line with forecast. As expected, the ECB choose to keep rates unchanged at 1.00% and took a "wait-and-see" approach.

Today, there are a couple of low-tier economic reports that will come out. At 7:00 am GMT, the German Final CPI will print. It is expected to confirm the preliminary figure of -0.4%.

Following at 7:45 am GMT is the French Industrial production report. The report is slated to show a 0.8% decrease, opposite the 1.1% increase seen the previous month. Falling industrial production is usually considered bearish for the euro.

As you can see, market moving events will be scarce today, so don't hold your breathe for a lot of movement! Keep a close eye instead on previous day highs and lows, as they might serve as today's inflection points.