Daily Economic Commentary: Euro zone

[PipDiddy]

Slow and steady does it! EUR/USD continued to crawl up the charts as it struggled to hold on to the 1.2300 handle. Unfortunately, the pair was unable to do so as it closed 17 pips below the psychological level. Read on to find out what happened and what's in store for the euro today.

Euro zone debt problems seemed to have taken a backseat for a while now, but it seems that these are back to haunt the markets yet again! The recent Spanish bond auction revealed that yields spiked close to the 7% threshold again, despite the approved bank bailout plan. This implies that investors are nowhere near confident about the proposed solutions for the country as they still require higher returns on their Spanish debt holdings.

Only the current account balance is set for release from the euro zone today, but this report isn't expected to have a huge impact on euro price action. Their current account surplus is expected to widen from 4.6 billion EUR to 5.3 billion EUR in May but, if the actual figure misses the mark, the euro could experience a bit of downward pressure.

As always, keep your eyes and ears peeled for any updates regarding the euro zone debt situation. Word through the forex grapevine is that Austria might be due for a debt rating downgrade, which could be negative for the euro if it pushes through. Stay on your toes!

[PipDiddy]

What the heck is happening on EUR/USD! For the fourth day in a row, the pair formed a spinning top-like candlestick on the daily chart, as it finished just a few pips below its opening price. Will we finally see a breakout to end the week?

The euro dropped late in the London session, as Spanish yields once again took the spotlight. Apparently, Spanish yields are slowly creeping back up to 7%, as European leaders will be meeting today to discuss the conditions for a Spanish bailout.

Yes, a bailout is coming, but of course, nothing comes that easy! There are some questions as to whether or not the moolah will flow directly to Spanish banks, or if it will still go the government. There’s also a question of whether senior bondholders will have to take losses on the debt that they are already holding.

In other news, the current account printed a surplus of 10.9 billion EUR, which was more than double than the expected 5.3 billion EUR figure.

For today, the only hard report headed our way is the German producer prince index report at 6:00 am GMT. Word on the street is that the producers paid 0.2% less for their raw materials last month.

However, I don’t expect market players to pay much attention to this report, as they’ll most likely be gearing themselves up for the Eurogroup meetings that will take place.

Will Spain be granted lax bailout terms or will Germany lay down the law? Woooo! What a way to end the week homies!

[PipDiddy]

EUR/USD reached new yearly lows last Friday as a fresh wave of euro zone debt troubles rocked the markets. After closing above the 1.2150 level last week, the pair gapped down over the weekend. Is EUR/USD on its way to 1.2000?

Euro zone debt problems came back with a vengeance last Friday as Spanish bond yields spiked above the 7% threshold and reached 7.18%. This shows that investors are requiring hell of a lot more returns on holding Spanish debt in order to compensate for the additional risk of default. This also means that, later on, the Spanish government will have a tougher time paying back its creditors.

This terrible news overshadowed the announcement from the EU approving the Spanish bank bailout plan. With Spain's largest city, Valencia, asking for financial assistance from the government, it's becoming pretty clear that a nationwide bank bailout will not be enough to save Spain. So much for being too big to fail, huh?

This week, the euro zone is set to release its PMI numbers on Tuesday and these figures could have a huge impact on euro price action. Wednesday has the German Ifo business climate index on tap while Thursday has the German GfK consumer climate report due.

For today, only the medium-tier euro zone consumer confidence report is on the agenda but this isn't likely to have a lasting impact on the euro pairs' movement. With that, the downbeat sentiment surrounding the Spanish debt woes could keep weighing on the euro for the rest of day unless we see any positive developments. Stay tuned!

[PipDiddy]

Looks like the euro finally caught a break! Sellers took a breather after dumping the euro sharply last Friday, leading EUR/USD to end the day 24 pips above its opening price at 1.2135. Could this be just a dead cat bounce?

It looked as though sellers would continue having their way with the pair as the euro gapped down over 40 pips to start the weekend. Heck, it even hit a fresh 2-year low!

Apparently, some report came out over the weekend saying that Catalonia, Spain's second most populated region, may soon join Valencia in asking for financial aid from the government. This in turn stoked fears that Spain may need to ask for a SOVEREIGN bailout. Yikes!

With bond yields on the rise and stocks on the rise, Spain and Italy have decided to ban short selling of stocks for the meantime. Sure, they can stop markets from short selling equities, but they can't stop markets from shorting the euro!

Today, we have a whole mess of reports coming our way. Beginning with the French reports at 7:00 am GMT, the euro zone will unload its monthly manufacturing and services PMIs. Germany will follow up with its own versions of the reports at 7:30, before we see the euro zone-wide edition at 8:00 am GMT.

Surprisingly enough, as a whole, the region is expected to see improvements in both sectors. The manufacturing PMI is expected to rise from 45.1 to 45.3 while the services PMI is anticipated to tick up from 47.1 to 47.3.

Do not miss these reports, fellas! They could determine sentiment for the euro today, especially if they print uniform results (i.e. all better than expected or all worse than expected).

[PipDiddy]

Euro just hit a new low, low, low, low! A new 25-month low against the dollar, that is! Before closing the day with a 64-pip loss at 1.2071, EUR/USD tapped 1.2042, its lowest level in more than two years!

With troubles from the euro zone sprouting left and right, I guess it was no surprise to see the currency crumble in yesterday's trading. Lemme tell you all about them!

For one, Spain had to pay higher yields for its 3-month bills. Last time, the government yields for short-term debt were only at 2.36%. In yesterday's auction, however, borrowing costs were higher at 2.43%.

Moody's also rained on the euro bulls parade when it downgraded the credit ratings of Germany, Holland, and Luxembourg from AAA to AAA-. Why? The renowned rating agency said that the three economies could get hit bad should Spain and/or Italy need bailouts.

Speaking of Spain, the country's bond yields continued to haunt the euro. The borrowing cost for 10-year bonds rose to a new high of 7.63% as bets that it would soon need a full-scale bailout increased.

And it didn't end there! On the economic front, most of the region's services and manufacturing PMIs for June also fell short of expectations. The reports only fueled concerns for the euro zone even more as they reminded investors that economies are already lagging in the midst of rising debt woes.

Only the French and euro zone services PMI came in better than expected at 50.2 (versus the 47.7 consensus) and 47.6 (versus the 47.3 consensus), respectively.

Meanwhile, the French and German manufacturing PMIs undershot their respective forecasts (45.6 and 45.3) by 2.0 points, coming in at 43.6 and 43.3. Germany's services PMI also disappointed the 50.1 consensus when it printed at 49.7.

The euro zone manufacturing PMI also fell short of expectations (forecast was up at 45.3) when it came in at 44.1.

Ay,ay, ay! I know it seems that we won't hear any good news from the euro zone in a while, but don't jump into that conclusion just yet. Who knows bond yields could ease off their highs and the German Ifo Business Climate report, due at 8:00 am GMT today, may just get the euro bulls hustlin' if it tops expectations (the forecast is 104.8).

With that said, make sure you're on your toes for updates from the euro zone, homies!

[PipDiddy]

Will ya look at that? It seems there's some life left in the euro after all! Even with the German IFO business climate report printing a downside surprise, the shared currency was able to post solid gains across the boards. EUR/USD undid Tuesday's losses by climbing 85 pips to 1.2156, while EUR/JPY eased off its 12-year lows to finish 65 pips higher at 95.03. Let's see if it can sustain these gains!

It looked as though traders would continue to dump the euro after Germany posted worse-than-expected IFO business climate results. The index came in at 103.3, which is 1.5 points lower than the figure markets were hoping to see. However, this didn't have much of an impact on the euro... in fact, it was largely ignored, homies!

Instead, the markets were focused on comments from ECB member Nowotny, who says the region should consider granting the European Stability Mechanism (ESM) a banking license. From the looks of it, the markets took this positively. It's nice to see policymakers looking at other options to contain and manage the European debt crisis!

Still, I can't help but wonder if yesterday's rally was just a dead cat bounce. I mean, think about it: Nowotny's proposal hasn't even been accepted yet, and it will likely take a while before such a banking license can be granted. Heck, the ESM hasn't even been approved by Germany yet!

Meanwhile, Italy saw its sovereign debt rating downgraded from B+ to CCC+ by Egan Jones. This just goes to show that the euro zone still has a loooong way to go before it gets out of the woods.

For those who missed yesterday's action - you're in luck! We could have another action-packed day ahead of us as we've got a couple of noteworthy events on the calendar.

First up is the GfK German consumer climate report due at 6:00 am GMT. Look for it to tick up from 5.8 to 5.9.

Then at 9:30 am GMT, ECB President Mario Draghi will take center stage as he participates in a panel discussion with BOE Governor Mervyn King. Don't miss this one, fellas! With two of Europe's top dogs set to speak, we could get valuable insight as to where the European economy is headed!

[PipDiddy]

Super Mario saves the day! Remarks from the ECB head honcho Mario Draghi sent the EUR up, up, and away in yesterday's trading. By the day's close, the shared currency had scored a 131-pip win against the dollar as it finished at 1.2287. Meanwhile, EUR/JPY was up 106 pips from its opening price of 95.03.

In a speech yesterday, the ECB President said that the central bank would do whatever it takes to ensure the survival of the euro. Consequently, his reassurance that the will ECB step in if it became necessary got investors giddy. Spanish bond yields dropped 20 basis points to 7.15% following the remarks which, mind you, didn't cite any specific actions from the central bank yet.

If borrowing costs continue to go lower in today's trading, we'll probably see the euro chalk up more gains as lower bond yields would somehow ease concerns about a Spanish bailout. So make sure you keep tabs on the bond markets!

Also be on your toes for top-tier reports from the euro's counterparts. Our forex calendar doesn't have anything scheduled from the euro zone today, but we do have a couple of top tier reports from the U.S. that could affect market sentiment.

That's all, folks! Happy trading!

[PipDiddy]

After EUR/USD’s meteoric rise on Thursday, the pair found itself trading within a tight range for the majority of Friday. The pair consolidated the entire Asian and morning European trading sessions and then rose slightly during the U.S. session. EUR/USD closed the day at 1.2300, just 13 pips higher from its opening price that day.

EUR/USD lacked movement due to the absence of market-moving events. All major reports came in as expected with the German CPI printing a 0.4% figure and the Advance U.S. GDP showing a 1.5% growth rate.

This week will be much different though as we’ve got a lot of high profile economic events on deck. Today, watch out for the Spain’s GDP report. It’s expected to show that the country shrunk by 0.4% during the second quarter after I had contracted 0.3% the quarter before. If it comes in worse than expected, EUR/USD could start selling off again.

Then, on Thursday, the European Central Bank (ECB) will be announcing its decision on interest rates. Market participants will be all ears on what the ECB has to say after it slashed interest rates by 25 basis points and set the deposit rate at zero percent in its last meeting.

The U.S. non-farm employment change will also be released on Friday. It normally has a strong impact on price action, so be sure to prepare yourself for volatility. The market is expecting that the 101,000 net jobs were created in July, slightly higher than the previous month’s 80,000 increase.

[PipDiddy]

Pretty slow start for the euro this week, as it didn't shoot off to any new highs or lows versus the dollar and yen. Could we see more of the same ahead of this week's ECB interest rate decision?

As expected, the Spanish economy shrank by 0.4% last quarter. This marks the third consecutive quarter that GDP growth has come in the red. This only provides fuel for those who believe that the Spanish government itself needs a bailout.

For today, we could be in for a bumpy ride as we've got a whole bunch of second-tier data headed our way.

At 6:00 am GMT, German retail sales growth figures are projected to show that sales rose by 0.6% last month. This would be a nice reversal from the 0.3% decline we saw the month before. Later on at 7:55 am GMT, German unemployment change figures are due and expectations are that 9,000 jobs were lost last month. If both these reports come in better than anticipated, it could give the euro a nice boost early in the London session.

Later at 9:00 am GMT, the CPI flash report will be made available. Word on the street is that inflation remains at 2.4%, which is well within the band that the ECB wants. However, if the report comes in to show that inflation is much lower, it could give the central bank some room to lower rates even further.

[PipDiddy]

Bad data? Ha! That ain't no problem for the euro. Well, at least not in yesterday's trading. EUR/USD traded higher despite disappointing consumer spending reports from Germany and France. The pair finished 45 pips above its opening price at 1.2304 by the end of the New York session.

German retail sales for June contracted by 0.1% and disappointed the market's forecast which was for a 0.6% growth. Meanwhile, French consumer spending only posted a 0.1% uptick for the month and fell short of the 0.2% consensus.

But don't worry, it wasn't all bad for the euro yesterday. On the bright side of things, Germany's unemployment change report showed that the number of unemployed people in the country was only up at 7,000 for June, still 2,000 people fewer than the market's forecast.

Meanwhile, the euro zone-wide CPI for July and unemployment rate for June came in just as expected at 2.4% and 11.2%, respectively.

Don't get too excited about buying the euro just yet though! EUR/USD is still trading below 1.2300. If you ask me, we probably won't see any significant moves on the pair until the ECB rate decision on Thursday.

But until then, it might be a good idea to keep tabs on the euro zone's final manufacturing PMI if you plan on trading the euro. Due at 8:00 am GMT, there are no revisions expected from its previous reading of 44.1.