Daily Economic Commentary: Euro zone

[PipDiddy]

When will the bleeding stop?! The euro extended its losses against its major counterparts yesterday no thanks to renewed concerns about Spain. EUR/USD ended the day 40 pips below its opening price at 1.2865 while EUR/JPY was down 42 pips at 99.98.

Violent protests over austerity measures in the euro zone's fourth largest economy spooked investors out of higher-yielding assets. If you read Forex Gump's article on Spain, you already know that there have been rumors about an imminent sovereign bailout.

We'll probably see more volatility on EUR pairs today as the government is scheduled to announce its budget. Analysts say that the shared currency will probably rally if ambitious reform programs are announced. But be careful not to keep your hopes high. With all the protests going around the country and local elections coming up, policymakers could sound modest in their budget cuts which may send the euro even lower.

Also, be on your toes for Germany's unemployment change report which will be released at 7:55 am GMT. Labor data from the euro zone's biggest economy will probably have an effect on the euro too, especially since there have recently been speculations that the German economy could soon head into recession.

The report is anticipated to print at 10,000 for August. A figure higher than the forecast would suggest that there were more unemployed people during the month and could be bearish for the euro.

Good luck!

[PipDiddy]

It looks like Spain's budget got the thumbs up from the markets! Impressed by the country's plans, traders bought up the euro, sending EUR/USD 48 pips higher. The pair staged its rally towards the end of the day to end at 1.2912.

Spanish leaders plan to slash their budget deficit from 9% to 4.5% by taking on harsh austerity measures. But the good news is that they aren't gonna rely heavily on tax hikes, but instead, they'll be cutting back on government spending. This may not sound like much to an outsider, but to the average Jose, this matters! Remember, taxes are already pretty high in Spain in light of the recent increase in the value added tax rate.

You've got to hand it to the Spanish government. They really tried to please everybody with their plans yesterday. To appease their own citizens, they also decided to bump up pensions and grants.

Is this their way of prepping the markets for a bailout? Maybe! It certainly seems like their budget was constructed with gaining the approval of the European Union in mind.

In other news, Germany posted a better-than-expected change in unemployment last month. Joblessness rose by just 9,000 instead of by 10,000, although the previous month's record of 9,000 was revised to 11,000.

Today, we've got a few more noteworthy reports and events on tap.

First up, at 6:00 am GMT, German retail sales data will be available. Look for it to show a 0.5% increase following the previous month's 1.0% decline.

Then at 9:00 am GMT, the CPI flash estimate is expected to come out and print a reading of 2.4%, down from 2.6%.

We'll also take a look at the Spanish bank stress test results during the European session. Will Spain get the markets' approval again? You'll have to stay tuned and see for yourself, buddies!

On a final note, today's the last trading day of the quarter, so bear in mind that volatility may be higher than usual. Stay safe and good luck trading, fellas!

[PipDiddy]

No strong finish here! The euro ended up posting its biggest loss in 6 days to end the quarter as EUR/USD slid 61 pips to 1.2851. And it looks like sellers aren't done dumping euros yet!

Friday's releases just didn't have what it takes to fuel a final euro rally. German retail sales data failed to match expectations as it recorded growth of just 0.3% instead of the 0.5% uptick that many had expected. Meanwhile, the CPI flash report estimates inflation clocking in at 2.7%, which is much higher than the 2.4% median forecast.

Even the Spanish bank stress test failed to deliver a surprise and boost the euro. The results showed that of the 14 banks that were tested, 7 would need more capital for a total shortfall of 59.3 billion EUR. Yowza!

To start off the new month, we have quite the lineup on the economic calendar. At 7:15 am GMT, we'll take a look at the Spanish manufacturing PMI, which last came out to print a reading of 44.0. Then at 7:45 am GMT, the Italian manufacturing PMI will be available. Look for it to improve from 43.6 to 44.1.

At 8:00 am GMT, Italy will follow up with the its monthly unemployment rate, seen at 10.8% from 10.7%. And finally, at 9:00 am GMT, we'll take a look at the state of joblessness in the euro zone as the region is set to publish its unemployment rate. Survey says we'll probably see unemployment rise from 11.3% to 11.4%.

Keep in mind that the ECB is set to hold its monthly rate statement again on Thursday, so price action may also be affected by the markets' expectations over the coming days. Good luck and happy trading, folks!

[PipDiddy]

Now that’s how you start a new trading quarter! The euro pared some of its losses yesterday as stronger-than-expected PMI reports trumped risk aversion. EUR/USD jumped 42 pips higher to 1.2889, while EUR/JPY also shot up by 37 pips to 100.55. Booyah!

Just when we thought that the euro is due for another trip down the loser lane, the euro zone’s PMIs generally came in better than analysts were pricing in.

Spain’s manufacturing PMI climbed from 44.0 to a reading of 44.5 in September around the same time as Italy’s PMI printed at 45.7, a number higher than the expected 44.1 reading. Meanwhile, the final manufacturing PMI for the euro zone was also revised from 46.0 to 46.1 thanks to strong growth in Germany and France.

Only Spain’s unemployment change at 7:00 am GMT and the PPI report at 9:00 am GMT are scheduled for release in the euro zone today, so traders will most likely focus on Spain’s bailout prospects. I hear that credit rating agency Moody’s is about to drop a downgrade on Spain, so you better stay glued to the tube in case the rumors have teeth in it!

[PipDiddy]

Phew, that was close! The euro breathed a sigh of relief and managed to end the day higher against the Greenback after Moody's postponed its decision on Spain's credit rating. EUR/USD closed at 1.2918 while EUR/JPY came 8 pips close to the 101.00 handle.

The euro zone didn't release any top-tier economic reports yesterday but the euro was able to get a boost from news that Moody's wasn't ready to announce any credit rating downgrades for Spain just yet. Apparently, the credit rating agency needs more time to review the recent budget proposals and stress test results before making a decision.

Only the euro zone retail sales report is scheduled for release from the region today and this report isn't expected to have a huge impact on euro pairs. But if you're trading the euro, it might still be helpful to keep an eye out for the release at 10:00 am GMT in case the actual figure comes in much worse or much better than the expected 0.1% decline.

Stay on your toes for any updates from the Spanish debt situation as well! Although Prime Minister Rajoy insists that Spain doesn't need a bailout for now, be mindful of remarks from other euro zone officials since the Spanish government has to make its decision towards the end of this month.

[PipDiddy]

Could this be the calm before the storm? EUR/USD stayed within a range yesterday, as it failed to establish and new highs or lows. The pair ended up closing at 1.2903, just 15 pips below its opening price.

The only piece of data from the euro zone yesterday was retail sales figures, which actually came in with an upside surprise. Sales rose by 0.1% last month, which was the complete opposite from the anticipated 0.1% drop.

For today, we could be in for some wild moves as the hotshots over at the European Central Bank will be announcing its interest rate decision today.

Yes, you might be thinking that with the central bank already announcing the Outright Monetary Transactions program last month, the ECB has already pulled the trigger on additional quantitative easing measures. But keep in mind though, that the OMT program can only be activated if a country requests for it. That means that liquidity won’t necessarily be pumped into the economy!

That said, there is the slight chance that the ECB could still be open to an additional rate cut later on this year. Tune in at 12:30 pm GMT, when ECB President Draghi is schedule to step up to the plate. If Mario takes a bearish tone, it would be taken as a sign that the ECB is still very cautious about the outlook of the economy and that it may have to resort to additional measures to get the ball rolling.

[PipDiddy]

Even though several market watchers expected the ECB decision to be bearish for the euro, EUR/USD and EUR/JPY proved them wrong as both pairs caught some solid gains yesterday. EUR/USD broke above the 1.2950 minor psychological resistance and closed at 1.3019 while EUR/JPY landed above 102.00.

The ECB kept rates on hold and didn't announce any additional easing measures as many expected. As it turns out though, ECB head Draghi's accompanying statement gave the euro quite a boost as he reassured everyone that the central bank's monetary policy stance is appropriate and that there was significant progress in Spain and Italy. Another factor that lifted the euro was Draghi's insistence that there would be no rate cut this year, which was also unexpected.

Only a couple of medium-tier reports are set for release from the euro zone today and these are German factory orders and euro zone final GDP. What could cause commotion in EUR/USD though is the U.S. non-farm payrolls release at 1:30 pm GMT. Make sure you check out Forex Gump's guide on how to trade EUR/USD for this NFP event!

[PipDiddy]

With the markets still enjoying a nice risk rally, the euro was able to keep its head above water and hold onto its gains from Thursday. EUR/USD made its way up another 11 pips to end the week at 1.3030, while EUR/JPY marched up 37 pips to 102.50.

No one really seemed to mind too much that the German factory orders report printed ugly results. It showed a 1.3% decline in August, far below the median forecast of a 0.5% decrease.

Instead, what the markets focused their attention on was the U.S. NFP report, which came in better than expected. The report helped lift risk appetite across the boards and provide support for the euro.

If you're looking for red flags to trade this week, you can start with the euro group meetings today, where the ESM will finally be launched. We also have the Sentix investor confidence report due at 8:30 am GMT and the German industrial production report due at 10:00 am GMT.

Tomorrow, we'll catch up with ECB President Mario Draghi, as he testifies before the Committee on Economic and Monetary Affairs of the European Parliament. As usual, it's best to listen in on what he has to say because you never know if he'll drop hints on what the central bank plans to do next!

[PipDiddy]

That's definitely not a good way to start the week! The euro got thrown into the bear lair in yesterday's trading as risk aversion dominated market sentiment. It finished 56 pips lower against the dollar at 1.2971 and suffered an 88-pip loss to the yen at 101.61.

Skepticism over Spain's balance sheets continued to haunt the euro. EU finance ministers met yesterday and they reiterated that the country doesn't need a bailout. With a major bond auction coming up at the end of the month, investors are worried if Spain could find enough demand at relatively low yields for its bonds.

Heck, market junkies are so worried about the fourth largest economy in the euro zone, they shrugged off the official inauguration of the ESM. Yup, you read that right. The permanent rescue fund is now operational with a financial capacity of 200 billion EUR to replace the EFSF.

Of course, it didn't help that mixed economic data hit headlines too.

Although Germany reported a much smaller contraction at 0.5% of its industrial production for August versus the -0.7% forecast, the Sentix Investor Confidence index fell short of expectations. The figure for October printed at -22.2 indicating that investors are more pessimistic about economic conditions in the euro zone that analysts predicted with the consensus just at -20.6.

Our forex calendar is blank for top-tier data from the euro zone today. However, with the ECOFIN meetings still ongoing and ECB President Mario Draghi scheduled to speak later (7:30 am GMT), keep an ear out for updates regarding Spain! I have a feeling that more denials about the country's need for a bailout would only do more harm than good to the euro. Good luck!

[PipDiddy]

Did the euro have a bad day or what? Euro bears were in complete control of the shared currency as they sold it off in favor of the dollar and the yen. This led EUR/USD to drop 102 pips to land at 1.2869, while EUR/JPY slid 93 pips to 100.68. What the heck happened?

Traders had the jitters over rising Spanish and Portuguese bond yields yesterday, which is why many of them shied away from the euro. Apparently, many market participants are already starting to stress about the possibility of a Spanish bailout. But really, can you blame them? After all, it would take a lot of dough to bail out a country as large as Spain. Where would the EU get that sort of money?

It didn't help that Draghi had some pretty pessimistic words to say about the economy. He outlined many risks to the economy (such as setbacks in reforms and financial instability). Overall, it seems that even the ECB head acknowledges the alarming weakness and threats to the euro zone economy.

On a more positive note, the ECOFIN meetings ended with the decision to grant Portugal its next financial aid tranche. And word on the street is that Greece may get a 2-year extension of its own! Angela Merkel was pretty vocal about her support for Greece, saying that she wants to do everything she can to help. She thinks that Greece could receive the lift it needs if only it had the money to do so... which is why many think it'll receive the next tranche of its bailout soon!

Not much on the docket from the big EZ today. So for now, it's best that you monitor risk sentiment if you plan on trading the euro. Be on the lookout for new developments that way spur risk taking and give the shared currency a lift.