Daily Economic Commentary: Euro zone

[PipDiddy]

And the selling resumes! Thanks to some bearish forecasts by the European Commission, the euro went into a major free fall. EUR/USD dropped 110 pips from its high at 1.2877 to finish at 1.2767, while EUR/JPY closed 106 pips lower to end the day at 102.00.

According to our buddies over at the European Commission, they expect the euro zone to contract by 0.4% in 2012, and to grow by just 0.1% in 2013. This was way down from the initial 1.0% growth forecast for next year. Furthermore, the EC is predicting that 11 euro zone members, including both Spain and Italy, to miss their deficit targets! Yikes!

Other economic data didn’t help the euro’s cause either, as euro zone retail sales fell by 0.2%, while German industrial production clocked in at -1.8%. These numbers were way off the predicted 0.0% and -0.4% figures, respectively.

Can the euro bulls bounce back today or will the sell-off continue?

Well, they got some good news earlier, as the Greek Parliament decided to pass additional austerity measures worth 18.5 billion EUR that would help the country receive 31.5 billion worth of financial aid. Some of the measures include pension cuts of 5-10%, salary cuts on government positions, and raising the retirement age from 65 to 67.

The major market mover lined up for today though, will be the ECB interest rate statement, due at 12:45 pm GMT. The central bank isn’t expected to cut rates, but do watch out for the accompanying statement at 1:30 pm GMT. Who knows what Super Mario Draghi will say this time! Make sure y’all hit up Forex Gump’s ECB preview for more insight on this potential game changer.

[PipDiddy]

Ka-pow! Bears delivered a multi-punch combo to the euro in yesterday's trading. EUR/USD finished the day lower at 1.2746 after opening at 1.2770. Meanwhile, EUR/JPY ended the day with an 82-pip loss at 101.30.

There were a few factors that made the euro vulnerable to the sellers' advances.

For one, markets are worried about China. Not only do we have a lineup of economic reports from the Asian country, but the government is also Going through major political reform. The Communist Party is still the ruling party in China, however, markets are on their toes for policies on growth and the Yuan that will be introduced by the new leaders.

Greece also added to the euro's problems. Riots have broken put in the debt-stricken country after the government agreed to implement more austerity measures and gave investors more reason to stay out of the euro.

Of course, there was also the ECB rate decision. ECB President Mario Draghi didn't announce any rate hike. In fact, he sounded pretty comfortable with the bank's current monetary policy, saying that inflation would fall below the ECB's target of 2%. However, he was very pessimistic about the region's growth in the coming year.

The German trade balance report didn't bode well for the euro either, as it only affirmed Draghi's concerns about growth. September's trade surplus for September was lower at 17.0 billion EUR than August's reading of 18.1 billion EUR and missed the 17.2 billion EUR forecast.

With all the pessimism surrounding Europe's growth, I wouldn't be surprised to see the euro trade lower should the French industrial production report come in lower than the -0.9% forecast later at 8:45 am. So make sure you don't miss it, ayt?

[PipDiddy]

The euro’s price action was as mixed as the Avengers’ personalities last Friday as traders priced in euro zone reports and events ahead of the weekend. The common currency fell against the dollar and the yen, but gained against the pound and the franc. What’s up with that?

Remember that market geeks were already worrying about German growth, which they say could significantly weigh on the whole region’s economy, and consequently lead to an overall weakness in global economic growth.

Well, it didn’t help that France and Italy had printed weak reports. France’s industrial production came in at -2.7% in September against analysts’ expectations of a 0.9% downtick. Italy didn’t do better with its own industrial data showing a 1.5% decrease, a disappointment from August’s 1.7% growth.

And then there are rumors of a Greek default and a Spanish bailout. In the ECB’s interest rate decision last week, Mario Draghi hinted that the balls are in the Greek and Spanish officials’ courts, as the central bank is already doing its part to help the countries get over their debts.

It seems that the Greeks were listening last week! Aside from narrowly approving new austerity measures last week, the Greeks had approved its 2013 budget plans earlier today. Analysts believe that with the new budget plans, the Troika would find an easier time approving the next Greek bailout tranche to the tune of 31.5 billion EUR.

But while the euro zone officials decide on the future of Greece, we could also trade a couple of reports scheduled this week. Tomorrow at 11:00 am GMT we’ll get hold of the German ZEW economic sentiment data, while we’ll also see the big GDP reports from France, Italy, and the whole euro region on Thursday at around 10:00 to 11:00 am GMT.

Keep your eyes peeled for these reports, will ya?

[PipDiddy]

The euro is off to a good start! After scoring three consecutive daily losses against the dollar and the yen, the shared currency was finally able to put an end to its losing streaks. Both EUR/USD and EUR/JPY finished the day 8 pips above their opening prices at 1.2713 and 101.02, respectively. Boo yeah!

Is the euro priming for a comeback?

Some analysts warn not to get too excited over the prospect of it. Naysayers think that the euro's measly wins yesterday were nothing significant. In fact, they think that the shared currency should've been able to rally higher after the approval of the 2013 budget by Greek policymakers.

Then again, Germany's remarks about its unwillingness to give the debt-ridden country more bailout funds until after the Troika releases its report next week might have weighed down on sentiment. Word around the hood is, Greece is at risk of a technical default if it fails to raise enough money by mid-November. Yikes!

EU finance ministers continue their meetings today. It would be a good idea to keep tabs on what they talk about as issues related to Greece would probably continue to affect the euro's trading.

Aside from that, make sure that you also pay attention to the German ZEW Economic Sentiment report for November which is due later at 10:00 am GMT. Expectations are for the report to print at -9.9, indicating pessimism about euro zone's largest economy. A better-than-expected figure could send the euro higher while a negative one could fuel a sell-off. Don't miss it, ayt?

[PipDiddy]

Weaker-than-expected economic data? Who cares! Thanks to the good news surrounding the euro zone crisis, EUR/USD was able to recover from its slump early on and close the day barely changed from its opening price. The pair began the day at 1.2713 and then closed the U.S. trading session at 1.2705.

ESM head Klaus Regling went on the wires yesterday and said that Spanish banks were on track for scheduled payments from its 100 billion EUR bailout and will not need to draw from the emergency funding. In addition, Greece was reported to have managed to raise enough sufficient funds to make the 5 billion EUR debt repayment due this week.

On the economic front, the German ZEW Economic Sentiment survey disappointingly dropped to -15.7 for the month of November. The forecast was for the reading to improve to -9.9 from the previous month’s -11.5. According to head of the ZEW, “prevailing recessionary developments” in the euro zone would most likely continue for the next couple of months.

No tier 1 reports are scheduled to publish today but that doesn’t mean we won’t see any economic data. At 10:00 am GMT, euro zone’s Industrial Production report will be released. It’s expected to show that production declined 1.6% September, opposite the 0.6% rise seen in August. Falling industrial production is normally seen as bearish for the domestic currency as it indicates that economic activity is also declining.

[PipDiddy]

Way to go, little one! The euro managed to score double wins against the Greenback and the yen yesterday, despite the gloom and doom in the markets. EUR/USD closed roughly 40 pips up from its 1.2705 open price while EUR/JPY ended 18 pips above the 102.00 handle.

Industrial production in the euro zone reportedly slipped by 2.5% in September, way worse than the estimate of 1.6% decline. This was also much worse than the previous month's figure, which was revised up from 0.6% to 0.9%. However, this negative report barely had any impact on euro pairs as German officials announced that they were hopeful Greece would receive its bailout funds soon. This, combined with EU leaders' confirmation that Spain would be able to trim its deficit early next year, was enough to lift the euro's spirits.

Today is a big day for the euro zone as it is set to release its GDP figures for Q3. Analysts are estimating a 0.2% economic contraction for the period, which would follow the region's -0.2% GDP reading for the second quarter. If that's the case, then the euro zone would officially be back in recession, folks! Keep an eye out for the actual figure due 11:00 am GMT.

The euro zone is also set to release its CPI figures along with the GDP report during today's London session. Their annual CPI is expected to stay at 2.5% while their core CPI could remain at 1.5%. These figures aren't expected to have a huge impact on the euro's movement as traders will most likely focus on the GDP release. Be careful out there!

[PipDiddy]

Rise, EUR/USD, rise! Thanks to extremely positive data, the pair was able to climb once again and close the U.S. trading session higher than its day open price. The pair ended the day at 1.2774, up from 1.2746.

Both the France and German GDP reports came in better than expected yesterday. The one for France showed that the economy grew 0.2% versus the flat reading the market had initially expected. Meanwhile, the German GDP report showed that the economy expanded 0.2%. The forecast was only for a 0.1% rise. For the entire euro zone, the GDP was -0.1%, slightly better than the -0.2% consensus.

The region’s CPI report was in line with expectations. The CPI was at 2.5% while the core version was at 1.5%.

Today, only the Current Account Balance will be published. It will publish at 9:00 am GMT and is projected to show a 9.2 billion EUR surplus for the month of September. In August, the surplus was at 8.8 billion EUR.

With the week coming to a close, you should be extra careful riding EUR/USD’s intraweek uptrend. Traders could begin taking profit, which could result in a mild pullback.

[PipDiddy]

Ka-blam! When news of the euro zone being officially in a recession hit the newswires, the euro promptly got punished. It lost 46 pips against the dollar, 36 pips against the yen, and 43 pips against the pound. Yeouch!

Last Friday the euro printed a decent trade balance report with an 11.3 billion EUR surplus against its 8.9 billion EUR figure in August. Exports fell though, so investors weren't too giddy about it.

Meanwhile, the current account report missed expectations with only a 0.8 billion EUR current account surplus when analysts were expecting a 9.2 billion EUR reading.

The two reports were nothing on the GDP report though. Late last Thursday the region showed its GDP numbers, which printed a 0.1% decline for the third quarter after falling by 0.2% in Q2 2012. The numbers marked the official recession in the region since 2009. Uh-oh.

Let’s see if the euro could pare some of its losses today. Deutsche Bundesbank President Jens Weidmann’s speech at 9:30 am GMT is the only thing on the euro zone’s docket today, so keep your eyes peeled for news on Greece’s bailout and the U.S. fiscal cliff in case they move the markets again today.

[PipDiddy]

Up, up, and away! The euro showed surprising resilience to start the week, posting respectable gains against its safe haven counterparts despite bad news from Moody's. The shared currency gained 64 pips against the dollar, while snatching 50 pips away from the yen.

As it turns out, even France isn't immune to debt rating downgrades! Yesterday, Moody's decided to revise the debt rating of the euro zone's second largest economy downwards to Aa1 from AAA and placed the country on negative watch. This just goes to show that no one is safe from the euro zone's economic problems; it's not just about the peripheral economies anymore... even the top countries are suffering!

Later today, European finance leaders are set to meet in Brussels to discuss Greece's second financial aid payment. A lot of investors out there are counting on these guys to deliver the next payment, so if a decision isn't reached later on, it could lead to sharp losses for the euro.

[PipDiddy]

Despite the potential market-moving reports that popped up yesterday, it’s all very ho-hum in the euro region. The common currency ended the day almost unchanged against the Greenback, while it ticked 46 pips higher against the yen. What happened to those reports?

As I mentioned yesterday, investors were at the edge of their seats over the euro leaders’ decision on Greece’s bailout. But the announcement was postponed and now they have nothing to do but wait some more. The disappointing German PPI report weighed on the euro for a while though, as it highlighted the possibility of a slowdown in the region’s growth drivers.

Even the Fed members’ speeches didn’t move the euro. Though three Fed heads spoke in conferences yesterday, they didn’t hint at what they’re going to do in the near future.

The only report scheduled today is the German 10-year bond auction. If Germany ends up paying higher yields, then we might see the euro take a hit against its counterparts. Of course, also keep your eyes peeled for the big announcement on Greece, as we could see heavy euro selling if the EU leaders disappoint.