Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
834

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!

835

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!

836

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!

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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.

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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!

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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!

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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[SUP]th[/SUP] 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!

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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!

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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.

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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.

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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/JPYwas 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!

845

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!

846

No strong finish here! The euro ended up posting its biggest loss in 6 days to end the quarter as EUR/USDslid 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!

847

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!

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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.

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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.

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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!

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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!

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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!

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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.