Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
914

The euro found itself broadly higher last Friday, thanks to the leftover bullishness from the dovish ECB interest rate decision the day before. EUR/USD finally broke out of 1.3300 and ended the day solid 53-pip gain at 1.3339.

There are also some analysts who are saying that the euro’s gains as of late have been result of traders pricing out their expectations of a euro zone breakup. Looking further ahead, we may see the euro rally even more in the following days if the earnings report in the U.S. surprise to the upside.

Today, only the euro zone’s Industrial Production report for the month of November is worth paying attention to. It’s going to publish at 10:00 am GMT and it is expected to show a 0.2% gain. In spite of the small anticipated gain, it’s still a pretty decent figure considering September’s reading was at -1.4%.

Euro zone’s economic calendar will be light for the rest of the week as the only major report due is the region’s consumer price index. It’s going to publish on Thursday and it is expected to show that the inflation rate has risen to 1.5% from 1.4%. The core CPI, on the other hand, is anticipated to remain at 2.2%.

915

Make that three in a row! The euro extended its gains against the dollar for another day as EUR/USD reached a high of 1.3404 before closing at 1.3379. EUR/JPY had its share of gains as it ended the day at 119.60.

There were no major releases from the euro zone yesterday, leaving the euro pairs at the mercy of risk sentiment. Fortunately for EUR/USD, Fed head Bernanke’s speech turned out to be a disappointment yesterday as the central bank head didn’t comment on how long their QE program would last.

Today, there are no high-impact reports on the euro zone’s calendar again, which means that sentiment could continue to be a major driver of price action. Note that the U.S. is set to release a bunch of top-tier data, namely its retail sales and PPI data, so y’all better stay on your toes in case volatility surges during the U.S. session. Be careful out there!

916

Yesterday, the euro suffered the wrath of the safe haven seekers as concerns over Germany’s economy surfaced. EUR/USD crashed and burned to 1.3298 from 1.3378 while EUR/JPY dropped back down to 118.09 from 119.60.

Data from Germany showed that the country most likely contracted during the fourth quarter by 0.5%. It was the worst reading in three years. The weakness, according to the data, was the result of weak exports and corporate investments. The negative data fueled speculation that the upcoming quarter would also be disappointing.

On the bright side, euro zone’s trade balance came in better than expected. It showed an 11 billion EUR surplus versus the 8.2 billion surplus the market had initially predicted.

The only red flag on euro zone’s forex calendar today is the consumer price index. It’ll publish at 10:00 am GMT and it is projected to show that the inflation rate remained at 2.2% in December. The CPI doesn’t normally have a strong impact on price action but it won’t hurt to see how the market moves when its released.

917

The euro bulls and bears had a fierce round of tug-o-pips yesterday when conflicting remarks from the region’s leaders got mixed in with grim German growth prospects. The euro ended the day higher against the pound, but lost a couple of pips to the dollar, franc, and the yen.

Yesterday ECB member Ewald Nowotny said that the euro’s strength is “not a major cause for concern.” This contrasts against earlier statement from Eurogroup Chairman Jean-Claude Juncker who said that the euro’s current levels are “dangerously high.”

Germany’s growth woes were also thrown in the mix. Thanks to overall weakness in its neighboring countries, the German government is only expecting its own economy to grow by 0.4% in 2013, which is almost half of its 0.7% estimates last month. Talk about lowering expectations!

Today only the ECB monthly bulletin at 10:00 am GMT is scheduled for release. Keep your eyes peeled for any remarks on expectations of the region’s growth, as well as any statement about the euro’s strength.

918

The euro bulls are back in town! After giving up ground in recent days, buyers decided to finally take control of the euro. EUR/USD climbed 96 pips to end its two-day slide, while EUR/CHF extended its gains, recording a 103-pip climb of its own.

Surprisingly enough, all it took to reignite demand for the shared currency was a successful Spanish bond auction. The euro made its move up the charts after it was revealed that Spain was able to raise 4.5 billion EUR in funds. Strong investor confidence led 10-year bond yields to ease to 5.07%, which is a heck of a lot lower than the 7% highs we saw last year. Looks like borrowing costs are finally becoming manageable, eh?

Nothing noteworthy on the economic calendar today. In the meantime, if you plan on trading EUR/USD, I suggest you monitor risk sentiment and check out what the U.S. has in store for you. Good luck and happy pippin’, folks!

919

Time for a breather, anyone? The euro bulls halted their buying spree last Friday when the lack of economic data inspired some profit taking. EUR/USD hit a wall at the 1.3400 handle while EUR/CHF closed 31 pips lower than its open price after spiking to a high of 1.2570.

There were no reports from the euro zone last Friday, so the last trading day of the week must have encouraged some of the euro bulls to take some of the risk off from euro exposure. Of course, it might have also helped that the IMF actually praised Greece’s Prime Minister Antonis Samaras, and said that he was a big help in straightening out the country’s austerity program.

Aside from the all-day Eurogroup meetings today, we’ll also see the German PPI report at 8:00 am GMT. While the report is a second-tier one, keep an eye out for any surprises as a significant miss in expectations could spook more euro bulls into selling the euro.

Good luck trading today, kids!

920

Consolidation is the name of the game! EUR/USD simply moved sideways yesterday as the pair held on to the 1.3000 major psychological level. Meanwhile, EUR/JPY had another losing day as it closed 41 pips down from its 119.90 open price.

There were no major reports released from the euro zone yesterday, leaving the euro unchanged against the Greenback. Against the yen, on the other hand, the euro lost ground as yen traders started positioning themselves ahead of the upcoming BOJ statement.

Germany is set to print its ZEW economic sentiment figure at 10:00 am GMT today and this report could have a huge impact on euro pairs. The figure for January is projected to climb from 6.9 to 12.2, reflecting a strong improvement in economic confidence. This could boost the overall ZEW reading for the euro zone from 7.6 to 14.1 and, if that’s the case, we could see a euro rally right after the release.

Later on, ECB head Draghi will give a speech at 6:00 pm GMT. Note that the central bank head has spoken of shifting the ECB’s focus from solving a fiscal crisis to boosting economic growth and that these upbeat remarks have been welcomed by a euro rally. If he adopts the same hawkish tone again, euro pairs could be headed north for the rest of the day.

921

Mixed results for the euro yesterday, which remained steady versus the dollar, but stumbled down the charts against the mighty yen. EUR/USD pretty much stayed within range, closing near its opening price at 1.3318. Meanwhile, EUR/JPY slid down the charts to finish 132 pips lower at 118.17.

The euro should have gotten a nice boost from solid ZEW economic sentiment reports, as both the German and euro zone versions printed way above expectations. The German report scored a 31.5, after it was projected to come in at 12.2, while the euro zone edition clocked in at 31.2, after initial estimates were calling for a reading of 14.1.

Normally this would have given the euro a major boost, and probably should have let the shared currency stampede against its major counterpart. But as we all know, forex is a tricky game and you never know how the markets will react!

As it would turn out, these solid ZEW figures weren’t enough to juice up the euro and all we got were mixed results.

No hard data on tap today, so we may see more consolidation in the euro today. Nevertheless, as my momma always used to say, better stay on your toes, as you never know what might rock the markets’ socks!

922

It’s a stalemate, ladies and gents! After a few moves here and there, EUR/USD ended the day right where it started. The pair dipped a bit below the 1.3300 handle to a low of 1.3298 but the psychological support level still managed to hold. Will this still be the case today?

The lack of major economic reports from the euro zone left the euro cruising sideways for most of the day. The region did report though that consumer confidence improved slightly in December as the index climbed from -26 to -24, but this release barely had an impact on euro price action.

Today’s set of PMI releases could be the catalyst for a stronger EUR/USD move as euro zone’s top two economies, Germany and France, will be reporting the state of their manufacturing and services sectors. Better keep an eye out for these figures starting 9:00 am GMT as stronger than expected results could trigger an upside breakout for EUR/USD while weaker than expected data could push the pair below the 1.3300 mark. Take a look at our economic calendar to find out what analysts are expecting to see with the PMI reports.

923

The euro saw some wild price action when the region’s PMIs showed mixed results. The common currency dropped in the early U.K. session before it capped the day higher against the Greenback, the yen, and the pound. Booyah!

France’s manufacturing and services PMIs set the grim tone early in the London session when they badly missed their expectations for January. French manufacturing showed a 42.9 reading against its expected 44.9 figure while services was only at a 43.6 instead of 45.6.

Germany saved the day though, as the region’s largest economy released better-than-expected PMI numbers. Manufacturing was at 48.8 instead of the 47.1 and services clocked in a reading of 55.3 instead of 52.0.

Only the German IfO business climate report at 10:00 am GMT is scheduled for release today, so you might want to pay attention to other major news events that could affect risk sentiment. More specifically, watch out for the BOJ’s meeting minutes at 12:50 pm GMT as well as the U.K. GDP at 10:30 am GMT.

Good luck trading today, kids!

924

Up, up, and away the euro goes! The shared currency skyrocketed on Friday’s trading as investors basked on good vibes from the euro zone. EUR/USD finished higher at 1.3465 after opening at 1.3373. It even tapped its 13-month high at .8537 before closing the day with a 68-pip win at .8522.

The German Ifo Business Climate index printed at 104.2 for January and topped expectations at 103.1. It marked the third consecutive monthly increase following December’s reading at 102.4 and so, it was easy to see why investors were happy.

Another good news for the euro was the ECB’s announcement that banks will repay over 137 billion EUR of their 489 billion EUR loans from the LTRO. This signifies that banks aren’t so cash strapped anymore and of course, that only made the euro even more enticing to the bulls. Boo yeah!

Will the good vibes carry over to today’s trading? Maybe, after all, we don’t have any top tier data to be released from the euro zone. Be on your toes, ayt?

925

After staging a solid two-day rally, EUR/USD put a halt to all the action and traded sideways to start the week. The pair finished the day virtually unchanged at 1.3456. What does the euro have in store for us today?

Overall, it seems the euro has been holding its ground pretty well against the dollar. It’s still trading close to last year’s highs! But it might just slip from these levels if today’s report disappoints.

At 7:00 am GMT, Germany is set to publish its GfK consumer climate report. The index is expected to tick up from 5.6 to 5.8. Take note, Germany is the euro zone’s largest economy and has been responsible for some of the recent improvements we’ve been seeing in the region, so a lower-than-expected reading from this report could have a negative impact on the euro zone and the euro.

926

Boomshakala! Just like that, EUR/USD is now threatening the 1.3500 handle! Will the bulls have enough momentum to break through the key psychological level?

The euro got a small boost from German consumer climate report, which printed at 5.8, marking a slight improvement from the previous month’s reading of 5.7. Apparently, German consumers are now expecting to be paid more, which means that they are more willing to spend some of their hard earned euros.

The big mover of EUR/USD though, was the U.S. consumer confidence report. Make sure you hit up my U.S. commentary for the 411 on that report!

For today, we’ve got the Spanish flash GDP report headed our way at 8:00 am GMT. Expectations are that the Spanish economy contracted by 0.6% last quarter, which would mark the 5[SUP]th[/SUP] consecutive month of decline. If the report shows though, that it contracted more than expected, it could send the euro diving down charts.

927

The rally isn’t over until it’s over, folks. EUR/USD once again managed to stage a magnificent rally yesterday, skyrocketing to its highest level in almost a year. The pair rose to 1.3564 from its opening price at 1.3487.

What pushed EUR/USD to new highs this time around?

Bearish news from the U.S., apparently.

The U.S. advance GDP report for Q4 2012 unexpectedly came in at -0.1%, completely opposite the 1.1% gain initially expected. It was also a huge drop from the previous quarter’s 3.1% growth (revised up from 2.0%). In addition, the FOMC said in its interest rate statement showed no sign that it would stop it purchasing securities at the rate of 85 billion USD a month any time soon.

Today, we’ll see some important data from Germany.

First up is the German Retail Sales report. It’s going to publish at 7:00 am GMT and it is anticipated to show a 0.1% increase for the month of December. In the month prior, German Retail Sales grew 1.2%.

Then, at 8:55 am GMT, the German Unemployment Change report will be released. It’s expected to show that the amount of people without jobs grew by 9,000 in December.

Lastly, the German Preliminary CPI will also be released sometime in the European trading session. It’s projected to show that the month-on-month inflation rate has fallen to -0.5% from 0.9%.

If the upcoming reports show upside surprises, it’s reasonable for the EUR/USD bulls to push for another rally.

928

Despite mixed economic data, the euro was able to sustain its momentum from the day before, as it edged higher versus the dollar and the yen. EUR/USD hit a high at 1.3594 before settling at 1.3574, up 10 pips on the day, while EUR/JPY closed at 124.06, up 34 pips from its opening price.

First, the bad news. German retail sales disappointed, printing a decline of 1.7% last month, after it was projected to show slight growth at 0.1%. Apparently, Germans weren’t quite feeling the Christmas spirit and held on closely to their euros.

The good news though is that the German unemployment change report showed that 16,000 people were able to find jobs last month. Not only was this a major improvement from the 2,000 figure we got last month, but it was also way better than the forecasted 9,000.

Meanwhile, German preliminary CPI figures came in as expected, indicating that consumer prices fell by 0.5% last month.

Currently, the euro is off to a good start today, as EUR/USD is now trading above the 1.3600 handle. The question is, can it sustain this momentum and soar to newer highs?

We’ve got some second tier data on tap that could provide the bulls some fuel.

First up, we’ve got the Spanish and Italian manufacturing PMIs coming up starting at 8:15 am GMT. Expectation are that the two PMIs will print scores of 45.5 and 47.6 respectively. Should they come in better than anticipated, it could give the shared currency a slight bump.

Next up, we’ve got the euro zone CPI flash estimate and unemployment rate which will be available at 10:00 am GMT. Word on the street is that inflation will remain steady at 2.2%, while the unemployment rate may have ticked up from 11.8% to 11.9%.

Of course, don’t forget that it’s NFP Friday, so pay attention during the New York session, or you might get burned!

929

Just look at the euro go! On Friday, the shared currency extended its winning streak against the dollar to a TENTH day. EUR/USD closed with an 88-pip gain at its 14-month high at 1.3663. Meanwhile, EUR/JPY finished the day 264 pips higher from its opening price at 126.70.

It would seem that the euro got a boost from the roster of positive data from the region. The Spanish manufacturing PMI came in better than the expected 45.5 reading at 46.1 and so did the Italian manufacturing PMI at 47.8 versus the 47.6 forecast. The region-wide unemployment rate also topped expectations at 11.7% when it was just estimated at 11.9%.

Sure the CPI flash estimate came in lower at 2.0% versus the 2.2% consensus, but it would seem that investors paid the report no mind.

We’ll most likely see a lot of movement in the euro in the coming days especially with the ECB rate decision scheduled on Thursday. Until then, you can keep tabs on the reports due for the shared currency. Later today at 8:00 am GMT, the Spanish unemployment change for December is eyed to print at 150,000.

A figure less than the forecast will probably be bullish for the euro so watch out!

930

Are the good days over for the euro bulls? Yesterday the euro got sucker-punched by its counterparts as concerns in the region resurfaced. EUR/USD dropped by 123 pips while EUR/GBP suffered a 117-pip blow. What the heck happened anyway?

The euro bears have three issues to thank. The first one is a simple profit-taking in the markets. With the ECB’s press conference and interest rate decision only a couple of days away, many are cautious and already locking in their profits.

It also helped the bears that Spain’s Mariano Rajoy is being asked to resign by the opposition party. Though Rajoy is denying his corruption allegations, the call for resignation was enough to boost the Spanish bond yields back to its six-week highs.

Italian bond yields also shot up yesterday thanks to increasing probabilities that former Prime Minister Silvio Berlusconi would gain his power back. Thanks to the news, Italian bond yields are now at highs not seen since early December. Yikes!

Let’s see if the euro can get back some support when the Spanish and Italian services PMIs are released sometime between 9:15 am GMT and 10:00 am GMT. The reports are expected to come in higher than their previous figures, so downside surprises could hurt the euro further.

931

To say that the euro had a good day yesterday would be an understatement. Heck, the euro had one heck of an AWESOME day! It pared half of its losses from Monday against the dollar when EUR/USD closed higher at 1.3584 from 1.3519. But eh, next to its wins against the yen and the pound, the 65-pip rise in EUR/USD look like chump change!

EUR/JPY was up 194 pips from its opening price at 126.85 while EUR/GBP finished 97 pips higher at .8673 by the end of the New York session!

It seemed like the stars aligned for the euro in yesterday’s trading. For one, positive data were released from the euro zone. The Spanish services PMI printed higher at 47.0 than what markets were expecting at 44.7 while the final EZ services PMI saw an upward revision from 48.3 to 48.6.

Of course, it also helped that risk appetite was up. From what I’ve read, the S&P 500 rallied to 5-year highs, indicating that investors are willing to seek “riskier” assets. Score one for the euro!

There were also rumors that the ECB still doesn’t find the euro strong enough to warrant any action. Remember that some markets fear that the central bank could intervene in its upcoming statement to tame the currency’s rise. And so, the rumors allowed euro bulls to hustle some muscle even more.

Will the shared currency be able to extend its gains today?

In my humble opinion, that would depend on risk appetite as well as fundamentals. According to our forex calendar, the German factory orders report for December is on tap. Seeing that the currency moved in response to economic data yesterday, I wouldn’t be surprised to see the euro post new highs against its counterparts should it print higher than the expected 0.8% reading later at 11:00 am GMT!

Don’t get too excited buying it though. Keep in mind that the ECB is scheduled to announce its rate statement tomorrow and we could see a bit of profit-taking ahead of the event. Just be on your toes!

933

The pain isn’t over yet. After its victory on Tuesday, EUR/USD found itself in correction mode again as it fell to the 1.3525 level. The pair started off at 1.3584, rallied slightly to test the 1.3600 area, but eventually faltered and closed the day at 59 pips lower.

It seems that market participants are very concerned about the potential political challenges that are facing two of the euro zone’s largest economies: Spain and Italy. In Spain, Prime Minister Mariano Rajoy has been involved in a corruption scandal.

Meanwhile, in Italy, polls have shown that Silvio Berlusconi’s gaining some ground ahead of the elections that will take place in February. Investors are scared that the former Italian prime minister’s vow to rescind an unpopular property tax could increase his support, and lead to a hung parliament.

The German Factory Orders was released yesterday. It showed that orders grew 0.8% in December, just as the market had initially expected. The figure was a welcome improvement from November’s 1.8% decline.

For today, expect a lot of movement on EUR/USD. At 12:45 pm, the European Central Bank (ECB) will announce its decision on interest rates. The market widely expects the central bank to keep rates unchanged and make no changes to the OMT program.

This means that the accompanying statement will be the focus of traders. Any verbal intervention with regards to the strength of the euro from the central bank could drag EUR/USD and possibly other euro crosses lower. Be very careful today, folks!

934

What goes up must come down! EUR/USD learned this the hard way when it tumbled close to a hundred pips after the ECB monetary policy statement. What the heck did Draghi say this time?

Although the central bank kept rates unchanged as expected, ECB head Draghi ruined the euro’s recent rallies by saying that further currency appreciation could threaten price stability. According to him, exchange rates should reflect fundamentals and that the ECB will keep a close eye on the euro’s price action from now on.

Aside from that, Draghi also mentioned that there are still risks lingering in the euro zone so the ECB will keep its accommodative bias for a while. On a more upbeat note, he pointed out that the region could continue to recover later on this year.

There are no major reports from the euro zone today, which means that the euro could keep erasing its gains now that the ECB is watching price action closely. Be careful out there!