Daily Economic Commentary: Euro zone

[PipDiddy]

Up, up, and away the euro goes! The shared currency rallied against most of its counterparts yesterday. EUR/USD tapped a 4-month high against the dollar at 1.2938 before closing the day with a 34-pip win at 1.2892. Meanwhile, EUR/JPY ended the day higher at 100.36 after opening at 99.96.

Although there weren't a lot of top-tier data on tap, there were enough good vibes to go around and push the euro higher from the German Constitutional Court ruling and the EU's banking proposal.

Just as expected, Germany's highest court didn't stand in the way of the ESM getting approved. The justices implemented a few conditions along with their approval, but it would seem that they were not restrictive enough to weigh down the euro.

Meanwhile, the EU proposed to let the ECB regulate banks in the EU and give the European Banking Authority the power to close down banks and set capital requirements. Some market junkies think that these ambitious plans of the EU helped boost risk appetite as they imply that officials are actively working hard to solve the crisis.

Our forex calendar doesn't have anything for the euro today except for the ECB Monthly Bulletin due at 8:00 am GMT. I don't think the report will have much of an impact on the shared currency's price action though. With that in mind, make sure you keep tabs on market sentiment and remember that the euro usually rallies when risk appetite is up. Good luck!

[PipDiddy]

Will EUR/USD hit the 1.3000 mark soon? The Fed's QE3 announcement yesterday triggered another sharp rally for EUR/USD as the pair jumped above the 1.2900 handle. EUR/JPY also had its fair share of gains as it made a solid break above the 100.00 mark.

The Fed finally gave in to what almost everyone was waiting for... QE3! The U.S. central bank announced that they would buy $40 billion worth of mortgage-backed securities each month for - wait for it - an indefinite period of time! Big Ben and his men must really be that desperate to keep the U.S. economy on its feet.

As for the euro zone, there were no big reports released yesterday but euro bulls still seem to be partying after the round of good news that they enjoyed the other day. After all, the German court's go signal for the ESM ratification implies that the region is still on track when it comes to solving the debt crisis.

Only the annual CPI figures are set for release from the euro zone at 10:00 am GMT today. Both the core and headline figures aren't expecting to see any changes from their 1.7% and 2.6% readings respectively, and these releases aren't exactly expected to have a huge impact on the euro. With that, make sure you stay on your toes for potential profit-taking scenarios until the weekend kicks in!

[PipDiddy]

Can you say, on a roll? The euro killed it like a Kanye West single, as it soared up the charts last Friday. EUR/USD closed higher for the fourth consecutive day, rising 131 pips to finish at 1.3120. Meanwhile, the euro bulls took advantage of yen weakness, pushing EUR/JPY to new highs at 102.84, 213 pips above Friday’s opening price.

Obviously, there was still some hangover from the results of the ECB’s launch of the OMT program, the Fed’s announcement of QE3 measures, and the German high court’s decision not to block the ESM. These three events have boosted risk sentiment, allowing higher yielding currencies to take their place atop the currency rankings.

On Friday, the ECB got even more leeway for its new bond purchase program, as the core CPI report indicated that year-on-year inflation clocked in at just 1.5%, which was below the forecasted 1.7% figure. If inflation continues to remain flat and within the central bank’s target band of 1%-3%, then the ECB will have a ton of room to keep the OMT program open as long as necessary.

The big questions for this week are: how much has been priced in and can the bulls keep this up?

For today, all we’ve got on tap are current account figures at 8:00 am GMT. This report reflects the balance of the euro zone’s imports and exports in July. Word on the street is that a surplus of 10.9 billion EUR was posted during that month, down from the 12.7 billion EUR we saw in June. Still, I’m not too sure how much this affect euro trading today.

Later in the week, we’ve got the ZEW economic sentiment reports (Tuesday) and German and French manufacturing and service PMIs (Thursday) headed our way. If all these reports come in generally stronger than anticipated, it could give the euro bulls a nice beat to keep their groove on.

Good luck trading this week homies!

[PipDiddy]

Will euro strength persist? For now, it seems that it will, as EUR/USD managed to remain above the 1.3100 handle yesterday. From EUR/USD’s opening price of 1.3116, the pair traded horizontally the entire day to end the U.S. trading session barely changed at 1.3108.

The only economic reports released worth noting from the euro zone yesterday were the current account and the trade balance. Both came in worse than expected with the current account printing a 9.7 billion EUR surplus (forecast was for a 10.9 billion EUR surplus) and the trade balance coming in with a 7.9 billion EUR surplus (forecast was for a 10.2 billion EUR surplus).

Euro zone’s economic calendar will be light again today as it only contains the German ZEW Economic Sentiment survey. It will come out at 9:00 am GMT and is predicted to show a reading of -19.2. Last month, the reading was at -25.5. The euro normally has a positive correlation with the results of the report: worse-than-expected results lead to sell-offs while better-than-expected results end in rallies.

[PipDiddy]

Despite the release of better-than-expected economic data, the euro struggled in yesterday’s trading games. EUR/JPY closed 45 pips lower to finish at 102.77, while EUR/USD dropped to 1.3038, 70 pips below its opening price. What gives?

The German ZEW Economist Sentiment survey actually printed higher than anticipated, clocking in at -18.2. Not only was this better than the projected score of -19.2, but it also marks a nice improvement from the previous month’s reading of -25.5. Nevertheless, this still signals a pessimistic outlook for the German economy. Perhaps in the coming months, economic expectations will improve, depending on how the markets react to the recently launched OMT program.

What hurt the euro yesterday was a rise in Portuguese 10-year bond yields, which are now sitting at a whopping 8.65%. With the Portuguese government recently raising taxes, citizens have taken to the streets in protest of all the austerity measures the government has been implementing. This social unrest has taken its toll on bond yields, which have now increased by more than 0.50% this week alone.

There's nothing lined up today, but given the sentiment this week, it would be prudent to keep an eye out on those yields. If we start to read tweets about rising Spanish and Italian bond yields, it might be time to jump off the euro bandwagon for now!

[PipDiddy]

Boy, did the euro have a wild Wednesday! EUR/USD topped at 1.3086 before dropping like a rock to 1.2993. Good thing the euro bulls good their act together before the New York session closed. By the end of the day's trading, the pair was up 18 pips from its opening price at 1.3056.

However, the euro wasn't so lucky against the yen. It gave up 46 pips to its Asian counterpart yesterday, closing at 102.31.

Luckily for the euro, data released from the U.S. yesterday disappointed market expectations and somehow distracted traders from the ongoing political drama in the euro zone. It was reported that Germany is asking that the banking union be limited only to certain banks.

This is bad news for the currency as it highlights the differences between EZ nations that could get in the way of the ECB's efforts in saving the euro. With that said, make sure you keep an ear out for updates regarding the issue.

Be on your toes for data from the euro zone too. Manufacturing and services PMIs will be on tap today and analysts have their hopes up that the two sectors would show improvements.

At 7:00 pm GMT, France's manufacturing PMI is anticipated to come in at 46.5 while its services PMI is seen at 49.5. Germany figures will be released next at 7:30 pm GMT. Its manufacturing PMI is eyed at 45.4 while the services PMI has been predicted at 48.5.

Finally, at 8:00 pm GMT, the euro zone-wide manufacturing PMI is anticipated to print at 45.6 while the services PMI has been estimated at 47.6.

These reports are probably the biggest event risk for the euro today, so make sure you don't miss them!

[PipDiddy]

With risk aversion back in tow, the euro was slapped around in yesterday’s trading matches. EUR/USD fell 87 pips to finish at 1.2968, while EUR/JPY closed at 101.48, down 83 pips on the day.

The euro took a hit thanks to poor Chinese data that hit the markets. The HSBC manufacturing PMI came in below the 50.0 mark for the 11^th consecutive month, indicating potential weakness in the Chinese economy. Naturally, this didn’t bode well for risk sentiment, and that’s why we saw risk aversion take over.

Meanwhile, the French and German manufacturing and services PMIs had contrasting results.

The French editions came in worse than expected, with its manufacturing and services PMIs printing at 42.6 and 46.1 respectively. However, the German versions landed surpassed expectations, with the manufacturing PMI coming in at 47.3 and the services PMI clocking in a reading of 50.6.

The underperformance of the French sector was a little alarming, as France has the second largest economy in the euro zone. If it appears that it too is starting to struggle, it could trigger more fears of the future of the euro zone.

For today, we’ve got no biggies on tap, so we may not see as big a move as we saw yesterday. Nevertheless, stay on your toes as you never know what might rock the markets!

[PipDiddy]

Finally, the euro bulls stepped up their game on Friday! EUR/USD finished 10 pips above its opening price at 1.2979. Meanwhile, EUR/JPY recovered from its low of 101.25 to end the day just 2 pips pips shy of a win at 101.44.

Optimism over a potential Spanish bailout sparked risk appetite and allowed the euro to muscle its way up the charts. Rumors that Spain would soon request for helped hit headlines and boosted the overall market sentiment.

I'm pretty sure the issue will continue to have an effect on the euro in the coming days so keep an ear out for updates!

Also, make sure you pay attention to the German Ifo Business Climate index On tap later at 9:00 am GMT. A figure better than the expected 102.7 could be bullish for the euro, so don't miss it. Good luck!

[PipDiddy]

It seems that the tide has truly turned for EUR/USD as it once again failed to defend itself against the bears yesterday. From its opening price at 1.2971, the pair had dropped to its lowest level in 12 days before it managed to pull back slightly to close the U.S. trading session at 1.2927.

EUR/USD’s decline stemmed from concerns on Germany’s growth. The German Ifo Business Climate survey yesterday came in at 101.4, which was slightly lower than the forecast of 102.6 and the previous month’s reading of 102.3.

Today, another important German report, the Gfk German Consumer Climate survey, will be published. It’s going to print at 6:00 am GMT and is expected to print a reading of 6.0. Last month, the reading was at 5.9. A rising reading is normally interpreted as bullish for the euro because it means that consumers are becoming more confident about their financial standing.

[PipDiddy]

EUR/USD was off to a good start yesterday as it rallied up to the 1.2950 area. However, the situation in Spain took a turn for the worse and pushed EUR/USD back down to the 1.2900 mark. What the heck is going on in Spain?!

It turns out that protests in Spain are getting crazier as tens of thousands of anti-austerity advocates stormed the Spanish Parliament and clashed with the police yesterday. In fact, this was just one of the many riots taking place in Spain as citizens refused to accept another round of belt-tightening measures from the government.

As for economic data, only the German GfK consumer climate figure was released from the euro zone yesterday. The actual figure stayed at 5.9 for this month, slightly worse than the 6.0 consensus but still indicating positive financial confidence in euro zone's number one economy.

Only a couple of medium-tier reports are set for release today and these are the German CPI and the Italian retail sales data. With these reports not expected to have a huge impact on euro price action, make sure you keep close tabs on the goings-on in Spain as another round of violent protests could send EUR/USD below the 1.2900 mark.