Daily Economic Commentary: Euro zone

[ForexGump]

Euro bulls finally took a breather last Friday as the EURUSD pair posted some minor losses when investors took profits off the table. The pair opened Asia at 1.4733 and ended the week at 1.4703.

Data last Friday was euro positive. The German producer price index, for August which was only expected to show a 0.1% increase, printed a reading a 0.5% increase. This was the first month-on-month gain since October last year adding more evidence that the global economy is on its way to recovery. Euro zone’s current account for the same month also posted surprising figures as it revealed a 6.6 billion euro surplus instead of the 4.3 billion deficit forecast. This was the first positive balance since April 2008.

Looking ahead the week, euro zone’s economic calendar has some medium and high impact data that could provide some volatility for investors.

On Wednesday, expect to see the estimates on the manufacturing and services purchasing managers’ index. Investors pay attention to the report as euro zone’s manufacturing industry makes up a huge chunk of its economy. The PMI asks purchasing managers whether the manufacturing and services industries are expanding or contracting. A reading above 50.0 means the industry is expanding.

The highlight of the week will be the September German Ifo Business Climate report on Thursday. The report attempts to determine the overall direction of the economy by asking businesses to rate the current and expected level of businesses conditions in the future. Economists predict it to rise to 92.1 from 90.5 the month prior.

If these reports come out better-than-forecast, we might see the EUR continue to make new highs against the USD.

[ForexGump]

The Euro stumbled around yesterday before finally sobering up midway through the US session. The EURUSD closed slightly lower, at 1.4676 after hitting as low as 1.4611. The EUR did however, continue to smack around the GBP, rising to a 5 month high at .9055.

Another relatively quiet day for the Euro zone today, with no high impact reports on deck. I’d be on the lookout for news coming out from the stock markets - changes in risk sentiment may spill over onto our side of the markets and cause some splashes.

Tomorrow, we may see more volatility as a slew of economic data will be released. Starting at 7:00 am GMT, French, German and Euro zone manufacturing and services PMI will be released, with all of the indexes expected to show improvements from the previous month. Also, French consumer spending and industrial new orders data will be released. With all this data on deck, coupled with the FOMC statement from the US side, we could see some developments in the market. Stay tuned!

[ForexGump]

After its two-day hiatus from the economic calendar, the euro zone makes a big comeback as it unloads a truckload of economic reports today. Gear up lads, price action could be pretty wild today!

The EURUSD is no stranger to wild price action, especially since it staged a strong rally and reached a new yearly high yesterday. As it edges closer to the 1.5000 mark, the EURUSD continues to be boosted by risk appetite while finding support from the ECB's indifference to EUR strength. ECB member Axel Weber commented that the rising EUR is not out of line with euro zone data and that the central bank is in no rush to hike up rates because the strength of the EUR tightens the economy.

Well, today we'll see how the member economies of the euro zone are faring. The two euro zone giants, France and Germany, are set to release their respective manufacturing and services PMI's at 7:00 am GMT. All PMI's are expected to record improvements and keep their footing stable above the 50.0 expansion mark. France will also be releasing its consumer spending data a few minutes earlier.

Later on, industrial new orders data from the entire euro zone is due at 9:00 am GMT. A 2.1% uptick is projected to follow the previous 3.1% rise in industrial new orders. Lastly, Belgium will report its NBB business climate by 1:00 pm GMT. The reading is predicted to climb up a couple of notches from -18.2 to -16.2. If data from the euro zone meets or beats expectations, then the EURUSD could reach another new yearly high. More so, if risk appetite continues to dominate in the markets, we might find the EURUSD inching closer to the 1.5000 level...

[ForexGump]

The EUR came in to disappoint yesterday as it slumped against both the greenback and the yen. The EURUSD actually hit a new high at 1.4843, before the USD rallied late in the US session, causing the pair to close significantly lower at 1.4742.

There were several issues that were released in the euro zone yesterday: French consumer spending, France, Germany and the euro zone’s flash manufacturing and services PMI, and the euro zone’s industrial orders. The mentioned accounts posted mixed results with only the French PMI and euro zone’s industrial orders registering gains. Despite the declines in some of the figures, the EUR’s movement remained muted ahead of the FOMC statement.

Meanwhile, yesterday’s FOMC statement indicated that the US economy has indeed recovered, albeit not fully, from its worse post WWII recession. Nevertheless, the FOMC still plans to purchase $1.25 trillion worth of agency mortgage backed securities and $200 billion agency debt in order to support the economy’s recovery. Though, it said that it will do so in a much slower pace compared to what was initially expected. The USD and the JPY rallied vis-à-vis the EUR to its best level in the session following the report.

Germany’s IFO business confidence survey is due later at 8:00 am GMT. The index is seen to rise to 92.1 from 90.5. If ever, the score of 92 would be its highest score since September of last year. Such an increase would indicate that Germany, which is the euro zone’s largest economy, is set to grow further after it pulled itself out last quarter from the global recession. Any increase in the figure would give the EUR a much needed lift given its decline yesterday.

[ForexGump]

Just like my good friend Big Pippin said in his daily chart art, the euro took another hit from the dollar yesterday as it fell more than 150 pips during the US afternoon session. Whether the move a major bearish correction or the start of a new trend remains a question needing an answer.

The September German Ifo business climate survey wasn’t much of a help to the euro as it printed a reading of 91.3, lower than the 92.1 forecast. Still, the euro managed to hold on since it was an improvement from the month prior’s 90.5. It is also at its highest level in twelve months.

The prime cause of the decline in the euro’s value was attributed to the poor numbers on existing home sales. The report, which measures the annualized number of previously owned homes sold, came out worse than expected as it printed a reading of 5.10 million. This gave risk aversion a chance to drop by in again unexpected, pushing the euro and equities lower.

Today, some minor impact economic reports are due for euro zone. Some minor impact economic reports are on the menu today for euro zone.

First up is the Gfk German consumer climate for September at 6 am GMT. The consumer climate report attempts to predict the direction of the economy by asking consumers on their sentiment towards the economy. The consensus is for the reading to improve this month, from 3.7 to 3.9.

There’s also euro zone’s M3 money supply y/y for August at 8 am GMT. The supply of money in circulation is expected to have risen by 2.7%.

We’re heading to the weekend and it’s time for traders to close shop again. Will we see some profit taking like last week or will the dollar rally persist? We’ll just have to wait and see!

[ForexGump]

The euro was able to avoid further losses against the USD on Friday, as there was a lot of up and down trading. The EURUSD finished slightly higher, closing at 1.4670 – just 13 pips above it’s opening. After setting a new yearly high last week, what’s in store this week?

The German Gfk consumer confidence report released on Friday indicated that Germans are feeling more optimistic towards the economy. The report had a reading of 4.3, an increase from a revised score of 3.8 in August. Still, consumers are wary over the state of unemployment, an issue that will have a large impact on consumer confidence in the coming months.

Other data released indicated that lending conditions remain to be weak in the Euro zone. Lending in the private sector barely grew, rising just 0.1% in July. Another report showed that money supply rose just 2.5% in August, less than forecast of a 3.0% increase. If lending and money supply continue to show signs of weakness, then you know what this means – consumer demand is sure to follow! And if the economy is still stuck in a rut, what does that mean? You guessed it – more economic stimulus! Of course, this could just be a one-month anomaly… Still, let’s see what this leads to as we enter the last quarter of the year.

Today, we could be in for a couple of surprises, as ECB President Jean Claude Trichet will be speaking before the European Parliament’s Committee on Economic and Monetary Affairs. He will be speaking at 2:30 pm GMT. Naturally, as president of the ECB, his words have bearing on the markets. So, be careful trading as we just don’t know what he will be talking about!

Also due anytime today is the German preliminary CPI m/m report. It is expected that German inflation fell by 0.2% in the past month. If this figure comes out worse than expected, it could spark fears of deflation, which could be bad news for the Euro.

Not much high impact news for the rest of the week. Just be on the lookout on Wednesday, when CPI and German unemployment data are due. Also, on Thursday, the Euro zone unemployment rate and German retail sales reports will be released.

Lastly, I’d keep an eye on GBP trading. The pound has been dropping as of late – the euro could stand to benefit from it’s weakness as investors and traders look for alternatives to invest in.

[ForexGump]

The EUR fell sharply yesterday as ECB President Trichet said that he supports a strong USD policy. This triggered a strong USD rally, causing the EURUSD to fall from a high of 1.4720 to a low of 1.4565 during the Asian session. It attempted to get back on its feet during the European session but it was unable to do so.

Trichet also expressed his concerns about the economic crisis being far from over, implying that the central bank is not ready to withdraw their stimulus policies just yet. Yesterday's economic data from Germany confirms that both the domestic and global economy is still in a rut. Price levels in the largest Euro zone economy fell by 0.4% year-on-year this month after rising by a mere 0.1% in August. The drop in CPI was mainly attributed to the decline in oil prices, which were down by 32% from last year. Also, the slump in global demand continues to dampen consumer spending, forcing manufacturers and retailers to lower their prices to stimulate sales.

Let's see what the consumers think about the state of the euro zone economy as we take a look at the consumer confidence index due at 9:00 am GMT today. The reading is expected to step up from -22 to -21 in September. Other than that, no other economic indicators are set for release from the euro zone today. With that, I suspect that the EURUSD will continue to be affected by Trichet's pro-USD comments but we'll just have to wait and see...

[ForexGump]

The EUR closed mixed against the two “safe haven” currencies – JPY and USD - in yesterday’s trading. The yuppy (EURJPY) rallied to close at 131.46 after marking its 3-month low at 129.82 the other day. The fiber (EURUSD), on the other hand, continued to slide. It closed at 1.4573 from an opening of 1.4606.

Euro zone’s economic confidence improved to -19 in September from -22. It was only seen to come in at -22. The latest score marks it highest level in 12 months as the economy shows signs of emerging from its deepest slump since the 1930s. Despite the better-than-expected consumer confidence result, the fiber continued to lose some pips.

The German unemployment change and the euro zone’s annualized flash CPI estimate will be released later today. About 19,000 more people are estimated to have been unemployed in Germany during the previous month. Meanwhile, the euro zone’s y/y flash CPI is seen to remain at -0.2%, which is well below the ECB’s 2% inflation target. A weak German labor market plus deflating prices do not reflect well on the euro zone’s economy. It goes to show that the euro zone, in spite of its recent positive economic developments, is not yet out of the woods. This is one of the main reasons why ECB President Trichet is lobbying for a stronger USD as such would buoy the economy’s export industry.

[ForexGump]

After losing almost every single day against the dollar this week, the euro finally found some legs in yesterday’s trading session. The euro’s victory was shaky though as bears tried to push the currency lower on account of poor results on the ADP report. At the end of the day, the euro’s losses proved to be short-lived as it was able to bounce back once the initial selling frenzy died down.

As for economic data, the September German unemployment change that measures the number of people who lost jobs printed surprising figures. It showed that 12,000 jobs were actually created, opposite the 19,000 jobs lost expected. This bumped down the country’s jobless rate to 8.2% from 8.3% the month prior.

In other news, the CPI estimate for September came out with a -0.3%, slightly worse than the -0.2% forecast, indicating that euro zone prices are still falling. This was the fourth straight month that inflation in euro zone has been negative. The falling prices, experts said, were mainly due to the sharp drop in food and oil prices. Despite this, they said not to put too much meaning on the poor figures as inflation would probably pick up and normalize on November.

The economic reports to watch out today would Germany’s report on retail sales at 6 am GMT and euro zone’s unemployment rate at 9 am GMT. The forecast is that Germany’s retail sales remained flat between July and August while euro zone’s unemployment rate edged up to 9.6% from 9.5% the month prior. If these reports show better-than-expected figures, we might see the euro rally versus the dollar again today.

However, take note that the NFP report is due for release tomorrow. This is a big deal among traders and because of this, we might see some side wards price action and muted liquidity today as investors sit on the side lines prior the release.

[ForexGump]

The euro struck out when looking for a dancing partner in yesterday’s trading session. The EUR was rejected by the USD, JPY and GBP, and found itself alone in the corner.

Euro trading wasn’t helped by economic news released during the day, as reports indicated that Euro zone unemployment has risen and that German retail sales figures were worse than expected.

Euro zone unemployment now stands at 9.6%, bringing the total number of people without work to 15.17 million. As I keep saying, it isn’t only the US labor markets that are weak – it’s everywhere! As long as this keeps up, I suspect that hope for recovery could dim…

German retail sales fell by 1.5% from July to August. This was a surprise, as it was expected that sales would remain steady for the month. But now that I think about it… other recent data (like German PMI) came out worse than expected… Could Germany slow down in the coming months, after it has posted some growth during the 2nd quarter? Just something to keep note of…

No high impact news coming out from the Euro zone today. I’d be on the lookout during the US session though, with the NFP report coming out. Watch out for some wild swings following the release.