Daily Economic Commentary: Euro zone

[PipDiddy]

After its stellar performance on Tuesday, EUR/USD failed to impress and simply moved ever-so-slowly down the charts yesterday. The pair ended the day at 1.2530, 38 pips lower from its opening price. It seems that market participants are choosing to sit on the sidelines ahead of the Jackson Hole Summit on Friday.

There wasn’t much in terms of data, as only the German Preliminary Consumer Price Index was released. It showed that the inflation rate was at 0.3%, slightly higher than the 0.1% the market had initially expected. Last month, it was at 0.4%.

Today, we’ve got more data from Germany. At 7:55 am GMT, the country’s unemployment change will be published. It’s projected to show that the number of unemployed people rose by 7,000, the same amount it increased last month. The report normally has a positive correlation with price action – better-than-expected results usually lead to a rally in EUR/USD.

The Italian 10-year bond auction will also take place. If it performs as well as the Spanish bond auction two days ago, EUR/USD could find a lot of support again.
In any case, let’s wait and see how the upcoming events actually affect EUR/USD.

[PipDiddy]

Just like the reality TV show Jersey Shore, the euro got axed in yesterday's trading too. EUR/USD once again failed to rally past resistance at 1.2550, finishing the day 22 pips below its opening price at 1.2508. We also saw a similar price action on EUR/JPY with the pair closing with a 23-pip loss at 98.37.

What caused the euro to trade lower? A LOT.

For one, risk aversion kicked in as traders braced themselves for the Jackson Hole Symposium. On top of that, Spanish bond yields once again crept higher. The IMF also didn't help when it released a statement saying that Greece will have a hard time implementing austerity measures.

Of course, it also did bode well for the euro that the German unemployment change report came in higher than expected. Data for July showed that the number of unemployed individuals were up at 9,000, 2,000 more people than what analysts had braced for.

Today's the first day of the much-anticipated Jackson Hole Symposium. Make sure you keep an ear out for updates, especially on QE3 from Fed officials as they could affect price action on EUR/USD.

There are also a couple of reports from Europe on the docket today. Although they're only considered third-tier reports, you still should pay attention to them! Who knows, they may give investors more reasons to buy (or sell) the euro in today's trading.

At 6:00 am GMT, Germany's retail sales report for July is anticipated to come in at 0.2%. Then at 9:00 am GMT, the CPI flash estimate for the euro zone for August is seen at 2.5% while the region's unemployment rate has been predicted to print at 11.3%.

[PipDiddy]

EUR/USD finished the week on a good note last Friday, thanks to more reports indicating that the ECB is considering flexible yield targets for shorter-maturity bonds. The pair also received a lot of support from comments by Chinese Premier Wen Jiabao who said that the Chinese government is willing to put money in Europe’s bond market.

Economic data from the region were also positive. The euro zone CPI flash estimate came in at 2.6%, slightly higher than the 2.5% forecast and the previous month’s 2.4%. Meanwhile, the euro zone unemployment rate was at 11.3%, just as expected.

This week will be a big one for the euro as an overabundance of economic events is scheduled to happen. Here’s a list of them with the most important ones in bold.

• Monday: Spanish Manufacturing PMI (7:15 am GMT), Italian Manufacturing PMI (7:45 am GMT), and euro zone Manufacturing PMI (8:00 am GMT)
• Tuesday: Spanish Unemployment Change (7:00 am GMT)
• Wednesday: Euro zone Retail Sales (9:00 am GMT)
• Thursday: ECB Interest Rate Decision (11:45 am GMT)
• Friday: German Industrial Production (10:00 am GMT)

In addition to these events, also watch out for the U.S. non-farm payrolls. It’ll be released on Friday! Even though it’s a U.S. report, it’s a major market mover that has a strong impact on most, if not all, currencies.

[PipDiddy]

Super Mario does it again! While traders were still processing the weak PMI reports from the euro zone, Mario Draghi’s said a comment or two that boosted EUR/USD by another 28 pips. What the heck did Draghi say?

In a closed-door parliamentary session in Brussels, ECB head Mario Draghi stated that buying bonds with maturities up to three years does not qualify as state financing and is still within the ECB’s mandate. If you recall, market players are expecting the ECB to announce some form of bond-buying program this Thursday when the central bank announces its interest rate decisions.

It might have also helped the common currency that the euro zone’s PMI data had mixed results. While Italy and the euro zone’s manufacturing numbers were a bit weaker than their previous readings, Spain’s data surprised to the upside with a reading of 44.0 after showing a 42.3 reading in July.

Spain’s employment numbers are due at 7:00 am GMT today, followed by the euro zone’s PPI report at 9:00 am GMT. If you’re not planning to trade these reports, then you better keep an eye out for any other comments or statements that might give clues on the ECB’s plans for Thursday!

[PipDiddy]

It seems few traders were willing to hold on to euros with the big ECB rate decision now just a day away. As a result, EUR/USD erased its gains from Monday, ending the day 29 pips lower at 1.2564.

It didn't help that yesterday's Spanish unemployment report came in much worse than expected. Spain, which suffers from a painfully high unemployment rate of 24.6%, saw the number of unemployed people seeking work rise by 38,200 in August, instead of falling by 27,800. Now, unemployment is at a 5-month high!

Today, we'll take a good look at how the services sector is doing in the euro zone. At 7:15 am GMT, Spain is due to roll out its services PMI, which last printed a reading of 43.7. Then at 7:45 am GMT, Italy will follow up with its own version of the index, which is expected to rise from 43.0 to 43.3. To round up the PMIs, the euro zone-wide edition will be released at 8:00 am GMT. Expect it to print a reading of 47.5 once again, homies!

However, if you're looking for numbers with more oomph, the retail sales report (due 9:00 am GMT) might do the trick. It's slated to show a 0.2% decline in sales after revealing a 0.2% uptick in June. Should this report print worse-than-expected results, the euro could come under more selling pressure.

[PipDiddy]

The euro does it again! Thanks to speculation of ECB bond purchases and risk appetite in the markets, the euro ended the day higher against its counterparts. EUR/USD closed at 1.2594 after testing the 1.2500 handle, while EUR/JPY registered a 19-pip gain. What’s in store for the euro today?

Judging by the dots on our forex calendar, the euro is in for a big day! Not only will France conduct its 10-year bond auctions, but Germany will also publish its factory orders report at 10:00 am GMT!

Of course, all other economic reports have nothing on the big boss of economic reports scheduled today. I’m talking about the ECB’s interest rate decision, folks! At 11:45 pm GMT we’ll know if the central bank has decided to cut its rates like many market players are predicting.

At around 12:30 pm GMT Super Mario will take center stage, where he is expected to announce some form of bond-buying program that would help ease the sky high peripheral bond yields. Will the ECB present a clear program and inspire risk appetite, or will it disappoint expectations by leaving a lot to interpretation? This is one market event that you shouldn’t miss, forex warriors!

[PipDiddy]

So that's what Draghi and his men had been working on! The ECB decided to keep rates unchanged at 0.75% but introduced a new program called the OMT. What the heck does this and how did the euro take the news?

OMT, which stands for Outright Money Transactions, is the ECB's plan to help lower borrowing costs by buying government bonds from weaker euro zone nations. What's particularly impressive and at the same time questionable about this program is that it is unlimited in size and has no minimum credit requirement. This program is intended to replace the SMP or Securities Market Program, which was introduced back in March 2010.

The central bank also cut their growth forecasts from a range of -0.5% to 0.3% to roughly -0.6% to -0.2% as they believe that there are further risks to growth. As for inflation, they raised their forecasts from 2.3%-2.5% to a range of 2.4% to 2.6% for the year.

EUR/USD initially sold off immediately right after the rate statement and dipped to a low of 1.2561 but it was able to recover and end the day in the green at 1.2637.

There are no red flags left on the euro zone's schedule for today but that doesn't mean it'll all be easy breezy for EUR/USD today. Bear in mind that the U.S. is set to release another bombshell in the form of its NFP report at 1:30 pm GMT today and that this could set off more fireworks in the markets during the U.S. session. Make sure you check out my buddy Forex Gump's NFP predictions if you plan to trade this event!

[PipDiddy]

Now that’s how you end the week with a bang! Thanks to optimism surrounding the ECB’s latest proposals, the euro continued to surge last Friday, marking 168-pip and 53-pip victories versus the dollar and yen respectively. Book it, baby!

Factors that also helped the euro last Friday were rumors about the SNB’s EUR/CHF peg, as well as better-than-expected German industrial production figures.

Word on the forex rumor mill is that our buddies over at the SNB are considering raising the EUR/CHF peg from 1.2000 to 1.2200. Meanwhile, it seems that industrial production in Germany picked up by 1.3% last month, which was much greater than the 0.1% expectation.

For next couple of days, we’ve only got second-tier data in the form of the Sentix investor confidence index due today at 8:30 am GMT. Expectations are that the index will print at -29.6, which would be a slight improvement from the -30.3 we saw the previous month.

The big news of the week will be the German high court’s ruling on the constitutionality of the European Stability Mechanism on Wednesday.

This vote is very important, as it will dictate how big of a contribution Germany can make to the permanent bailout program. If the high court concludes that Germany may participate in the ESM, it could give a major boost to higher-yielding currencies. On the other hand, if the high court decides that it is unconstitutional, it may lead to the euro giving back all its gains from late last week.

[PipDiddy]

Not so fast, little one! After rallying by more than a hundred pips last Friday, EUR/USD erased some of its recent gains as it closed at 1.2759, 52 pips down from its 1.2811 open price. EUR/JPY also ended the day in the red as it retreated from the 100.00 handle and closed at 99.84.

There were hardly any reports on the euro zone's schedule yesterday, save for the French industrial production figure and the euro zone Sentix investor confidence report, both of which came in better than expected. Without any other reports that could've influenced risk sentiment yesterday, much of the euro's losses could probably be attributed to quick profit taking after Friday's rallies.

There are no major reports on the euro zone's agenda for today, leaving euro pairs to take their cue from market sentiment. Bear in mind, however, that the Dutch are set to hold elections today while Germany's constitutional court is set to discuss the validity of the euro zone's rescue funds. If all goes smoothly, the euro might have a chance to hold on to its recent gains. Otherwise, a euro selloff might be in order. Keep your eyes and ears peeled for updates!

[PipDiddy]

The euro is back on the winners' list, baby! With traders anticipating good news from today's major events, the shared currency had an easy time finding interested buyers. EUR/USD found itself 99 pips higher at 1.2858, while EUR/JPY crept up 12 pips to finish at 99.96.

Yesterday's moves had little to do with yesterday's economic releases... 'cause we all know the euro zone didn't release anything noteworthy. Instead, the euro's rally can mostly be attributed to market expectations. Traders are feeling good about today's lineup of events and they're hoping we'll get positive results!

Today, the euro zone is set to hold three major events - European Commission President Jose Manuel Barroso's the banking union proposal, the Dutch elections, and the German Constitutional court ruling (8:00 am GMT). Today's developments could have a drastic impact on the euro zone economy over a long period of time, so the markets are keen on seeing positive outcomes.

As outlined in Forex Gump's article on the 3 events that could rock the markets this Wednesday, each of these could have a bearish or bullish effect on the euro, depending on its outcome. If you want to learn more about these events, you only need to head on over to Forex Gump's blog!