Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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The euro was uplifted yesterday as China announced that it had decided to cut its benchmark interest rates by 25 basis points. Unfortunately, the move proved to be unsustainable, as Federal Reserve Chairman Ben Bernanke did not affirm the need for further easing in a speech that he made late in the trading day. EUR/USD rose as high as 1.2626 before falling to 1.2565 by the end of the U.S. trading session.

The Spanish bond auction yesterday wasn’t much of a market mover as it pretty much met forecast. Out of the targeted 2 billion EUR, they were able to sell around 2.07 billion EUR. The average interest rate of the bonds sold, however, was high at 6.04%.

Today, euro zone’s docket is pretty light as only the trade balances of Germany (6:00 am GMT) and France (6:45 am GMT) are scheduled to print. Both don’t have a significant impact on the euro’s price action, so don’t hold your breath for them.

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Looks like the weekend couldn’t come at a better time! After posting consistent gains throughout the week, the euro ended Friday on a sour note as it posted losses versus the dollar and the yen. But when I opened my charts earlier today, I saw the euro pairs gap up! What gives?

The major reason why the euro got rocked to end the week is because Fitch decided to slap not a one, not a two, but a THREE notch downgrade on Spanish debt. This put Spanish debt at the lowest possible investment grade status. It wasn’t too surprising though, as rumors of a Spanish bank bailout spooked the markets.

According to Fitch, the Spanish banking sector may need a recapitalization of 60 billion EUR and possibly as much as 100 billion EUR! Yikes! This is as much as THREE times the initial forecast of a 30 billion EUR bailout.

Oddly enough though, euro pairs have gapped up over the weekend, as news broke out that we would see an orderly Spanish bank bailout, even though they have asked for over 100 billion EUR. There is no word yet on whether the funds will be provided from the temporary EFSF or the permanent ESM. I’ll be sure to hook y’all up with more details as soon as possible.

As for economic data, the only report headed our way is French industrial production figures at 6:45 am GMT. Word is that production rose by 0.1%, which would be a decent improvement from the 0.9% decline we saw last month. Still, I don’t see this dictating euro trading for today. Instead, keep an eye out for those gaps and for more news about Spanish bailout woes. Good luck compadres!

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Another day, another set of problems for the euro! Although the shared currency was off to a roaring start as it gapped up against the Greenback and the yen over the weekend, these gaps were quickly filled as the euro slid down the charts the entire day. What went wrong in the euro zone?

Traders didn’t seem to pleased about the news of Spain’s bailout as they worried that another debt saga similar to that of Greece was about to unfold before their eyes. Of course we all know that the Greek debt drama didn’t turn out too well for the euro, as this led to several bailouts, speculation of a Grexit, and talks of a possible euro zone break-up.

It doesn’t help that Spain is euro zone’s third largest economy and a meltdown in their financial system could be much more catastrophic for the entire region.

As for economic reports, France’s industrial production figure came in stronger than expected at 1.5%, beating the consensus of a mere 0.1% uptick. However, this piece of good news obviously wasn’t enough to save the euro in yesterday’s trading.

Up ahead, the coast is pretty much clear for the euro zone when it comes to economic releases for today. Only the French employment data is on tap but this isn’t likely to have a big impact on the euro’s movement anyway. With that said, make sure you keep your eyes and ears peeled for any updates on the euro zone debt situation, particularly that of Spain, to find out how the euro could behave today. Stay on your toes!

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With no economic data out from the euro zone, the euro bears took a chill pill yesterday and took profit on their short euro positions. EUR/USD capped the day with a 22-pip gain, while EUR/JPY also enjoyed a 20-pip lift. Are we looking at a possible reversal, or just a breather?

No economic reports were released from the euro zone yesterday, but word on the streets is that traders are taking profit on their short euro positions ahead of the Greek elections coming up in a few days.

It doesn’t mean that the euro bears are done selling though. For one thing, Spain’s bond yields climbed to a new record high yesterday, which means that the Spanish government might have a harder time paying off its already ridiculously high priced debts. Too bad the bailout lite for Spanish banks wasn’t that much of a help, huh?

Cyprus also made its entrance to the debt drama Cyprus Finance Minister Vassos Shiarly announced that the country has an “exceptionally urgent” need for a bailout. The island’s economy might only be a 60[SUP]th[/SUP] the size of Spain’s, but it limited the shared currency’s gains nonetheless.

Of course, we can’t forget the elephant in the room! While some traders will most likely hold their positions ahead of the Greek elections this weekend, others might be willing to step back to avoid a potentially crazy volatility from the news event. Keep your eyes peeled for possible profit-taking flows!

Meanwhile, economic data junkies will get their fix at 5:30 am GMT when the French CPI report is released, followed by the German CPI data at 6:00 am GMT. In addition, the euro zone’s industrial production report will be printed at 9:00 am GMT. And get this – Germany will have an auction for its 10-year bond yields today!

Stay sharp in your trades, brothas!

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With the euro zone still grappling with problems left and right, it seemed like Mission Impossible for the euro to end the day higher yesterday. But it did. The shared currency pulled off a Tom Cruise in yesterday’s trading and cruised up the charts.

EUR/USD rallied to close the day 67 pips above its opening price at 1.2572. Meanwhile, EUR/JPY ended the day with a 41-pip gain at 99.80.

Spanish bond yields were still at uncomfortably high levels yesterday but at least, they eased from their record highs at 6.8%. On top of that, Italian bond yields were higher at an auction yesterday. 12-month Italian bills rose to almost 4% after being at 2.34% just last month. Word around the forex hood is that the Italian government could already be suffering from the lack of confidence in the sovereignty by investors.

But perhaps the euro caught a lucky break yesterday as talks of QE3 from the Fed grew even more and the disappointing roster of economic data might have given investors a reason not to buy the dollar.

Today, only second-tier reports are scheduled to be released from the euro zone. We kick-start the line up with the ECB monthly bulletin at 8:00 am GMT. Then at 9:00 am GMT, the region’s CPI report for May will be released. The headline inflation figure is seen at 2.4% while the core reading is anticipated at 1.6%.

Aside from those reports, be sure that you also keep an ear out for updates from the region. Pay special attention to news from Greece, Spain, and Italy as the fiscal situations of the three countries seem to be on every investor’s mind right now. Good luck!

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Despite rising European bond yields, the euro remained steady in yesterday’s trading action and actually chalked up another victory versus the dollar. For the first time in nearly 7 weeks, EUR/USD posted its third consecutive gain, rising 38 pips above its opening price to finish at 1.2620.

The euro’s success yesterday was somewhat surprising, as Spanish bond yields rose above 7% as Moody’s recently downgraded Spanish debt to just above junk status. Despite the concerns about Spanish debt, it seems traders are unwilling to put their money on the line ahead of the Greek election, and that’s why the euro was able to stay afloat yesterday.

In other news, the CPI reports came in just as expected, with headline figures printing at 1.6% while core numbers came in at 2.4%. This indicates that for the most part, inflation isn’t out of hand, which could give the ECB the room it needs for a rate cut sometime later this year.

Seeing as how the Greek election is just around the corner, I don’t expect us to see any strong moves in today’s trading. Just watch out for ECB head honcho Mario Draghi’s speech at 6:50 am GMT, as he’ll be speaking at an economic conference. You never know what he might say, so just be careful when he begins his speech!

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The Greek elections are finally over! It seems like the markets are taking the election results well as EUR/USD gapped higher over the weekend and opened at 1.2700 while EUR/JPY kicked the week off at 100.04. How exactly did those elections turn out?

After days and days of waiting, Greece’s New Democracy Party emerged victorious after the elections as they earned the right to start the new coalition government. Recall that this is the more conservative and pro-bailout party, which eased some fears that Greece would be forced to exit the euro zone and default.

However, the winning party still has a lot on its plate since they have only 3 days to get the coalition government up and running. Aside from that, they also have to iron out the budget cuts they need to make before the end of this month in order to comply with the bailout rules. That means the next few days are still bound to be pretty exciting for the euro pairs!

As for economic reports, the coast is clear for the euro zone today as traders could continue to bank on the positive sentiment following the recent Greek elections. Tomorrow, Germany and the euro zone are set to print their ZEW economic sentiment readings for June. PMI figures are set for release on Thursday while the German Ifo business climate figure is due Friday.

It’s bound to be action-packed week for the euro so make sure you plan your trades well and set those stops right! Good luck!

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It has only been one day since the conclusion of the Greek elections but traders have found a reason to sell EUR/USD again! Yesterday, spotlight shifted to Spain as yields for the country’s 10-year bonds rose above very significant 7% handle. EUR/USD, as a result, ended the U.S. trading session with a 123-pip loss at 1.2577.

Even though the victory of the pro-bailout party re-election in Greece was able to support EUR/USD early on, the gains were only temporary. The market’s focus has moved to the other problem child of the region: Spain.

There were no important news releases yesterday but today the ZEW Economic Sentiment survey for Germany and the entire euro zone will be released. The one for Germany is expected to print a reading of 3.8% while the one of the entire euro zone is slated to show a -5.7 reading. The forecast for both surveys are worse than the readings from the previous month.

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Who’s the loser now? Despite weak economic reports from the euro zone, the common currency was able to step ahead of its counterparts yesterday. EUR/USD rose by 107 pips, and EUR/JPY clocked in a 68-pip gain. What the heck boosted the euro?

Not the region’s economic data, that’s for sure. Germany’s ZEW economic sentiment, a gauge of morale on the economy, fell to its lowest level since 1998 at -16.9. Meanwhile, the region’s ZEW data also plunged to -20.1 when analysts were only expecting a -5.7 figure.

Spain’s bond auction wasn’t any help either. Though the government was able to raise a bit more than its 3 billion EUR target, it had to promise much higher yields on its 12 and 18-month bills. Yields on the 12-month bills soared from 2.98% to 5.07%, while the 18-month bills will be paid at 5.10% vs. 3.3%.

Fortunately for the euro, investors are optimistic on the latest G20 meetings. No official announcement has been made just yet, but many believe that the leaders would come up with a couple of resolutions that would keep the crisis at bay.

Of course, it didn’t hurt that rumors of Angela Merkel softening her stance on using the EFSF and the ESM to directly buy peripheral bonds circulated in markets. Not only that, but a couple of analysts even interpreted that the significantly weak ZEW reports would spur the ECB to action. Talk about seeing the silver lining!

Will the data from the region reinforce the market players’ optimism? Only the German PPI data at 6:00 am GMT is scheduled for release today, but that doesn’t mean you shouldn’t keep your eyes glued to the tube! For one thing, you should watch statements from the G20 leaders!

Keep your head in the game, kids!

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Surprisingly enough, even with yesterday’s major market events, EUR/USD remained range-bound and merely traded sideways. The pair swung wildly in the hours surrounding the FOMC statement, but it eventually settled at 1.2683, just 2 pips below its opening price.

For a time, the euro actually caught the markets’ interest as Greece’s New Democracy, Pasok, and Democratic Left parties were able to form a coalition government. But Antonis Samaras, who was sworn in as the prime minister, will have a tall task ahead of him as his new government will have to find another 11.6 billion EUR worth of austerity cuts in order to please Greek creditors.

In other news, German Chancellor Angela Merkel seems to be shifting her stance on the issue of using the EFSF to buy bonds of debt-troubled euro zone nations. Earlier this week, German officials said they wouldn’t approve such a move, but yesterday, Merkel said that the fund could possibly be used to purchase sovereign bonds in secondary markets.

Up ahead, we have a whole mess of PMI reports coming our way, beginning with the French flash manufacturing and services PMI at 7:00 am GMT. After that, at 7:30 am GMT, Germany will follow up with its own versions of the reports. Then finally, at 8:00 am GMT, we will take a look at the euro zone-wide manufacturing PMI (forecast to fall from 45.1 to 44.9) and services PMI (forecast to drop from 46.7 to 46.5).

These reports should give us a pretty good picture of recent business activity in the euro zone, and previous releases have moved the markets in the past, so don’t even think of missing them!

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Geronimoooo!!! After enjoying days of consecutive gains against its counterparts, the euro bulls finally cried uncle. EUR/USD plunged by a whopping 137 pips, while EUR/JPY also received an 89-pip blow. So what burst the bulls’ bubble?

The PMI reports from the region didn’t help, that’s for sure. Though the French manufacturing and services PMI came in at stronger-than-expected at 45.3 and 47.3 respectively, it was the German PMI numbers that got the investors’ attention. Manufacturing PMI in the euro zone’s largest economy deteriorated from 45.2 to 44.7 while its services PMI dropped 51.8 to 50.3.

It also didn’t help that market players are starting to worry about the euro zone officials’ ability to come up with a concrete solution in time to save the region’s debt problems. Merkel is set to have a closed door meeting with French President Hollande and Spanish and Italian Prime Ministers Rajoy and Monti this weekend, but investors aren’t hoping for any significant announcement.

Let’s see if the German IfO business climate released at 8:00 am GMT will give the euro bulls reprieve. The data is estimated to come in at 106.1 against the 106.9 figure in May, but make sure you stick around in case the data misses expectations. Meanwhile, the Belgian business climate report will be released at 1:00 pm GMT today.

Good luck trading today, homies!

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EUR/USD struggled to hold on to the 1.2550 minor psychological handle on Friday before ending the day in the green and closing at 1.2562. EUR/JPY also had its share of gains as it ended at 101.02, 28 pips above its 100.74 open price. Can the euro hold on to its recent gains this week?

Germany printed a weaker than expected Ifo business climate reading for this month as the index slipped from 106.9 to 105.3, lower than the consensus at 106.1. That marks the second consecutive monthly drop and its lowest reading in two years! Components of the report revealed that businessmen are gravely concerned about the debt troubles brewing all over the euro zone and are worried that further economic contraction could be in the cards.

There aren’t a lot of red flags on the euro zone’s schedule for this week, which means that we have to be extra watchful of other happenings in the region in order to find out where the euro could be headed. Bear in mind that Italy is set to conduct another bond auction towards the end of the week and I’m pretty sure that most market participants will be paying close attention to their bond yields.

Also, don’t forget that the EU economic summit will take place during the latter half of the week and that we should pay close attention to their discussions and agreements (or lack thereof) when trading euro pairs. Don’t worry, I’ll keep you updated every day!

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Rough start to the week for the euro, as it dropped against the dollar, yen, and pound. Could this be a sign of more losses in the days to come?

Apparently, market players were disappointed when German Chancellor Angela Merkel shut the door on any pleasant surprises from this week’s EU summit. As she has for months now, Merkel rejected the idea of joint euro zone bonds, as this would effectively increase risks to Germany as yields would rise. Since Merkel refuses to budge on this issue, expectations are quickly shifting towards this summit becoming an absolute dud.

In other news, Spain formally requested for financial aid for its banks, which helped send Spanish yields even higher.

For today, we’ve got the preliminary German CPI report scheduled to come in at the start of the London session. Word out of Berlin is that prices remained flat last month, after falling 0.2% the month before. I don’t expect this report to affect trading too much though. Instead, make sure you tune in and listen for any news about Germany’s stance on joint euro zone bonds. If it appears that Merkel is suddenly remotely open to the idea, it could send the euro flying sky high!

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Chop chop! Yesterday was a topsy turvy one for EUR/USD as it struggled but failed to hold on to the 1.2500 major psychological handle. The pair dipped to a low of 1.2442 then managed to close at 1.2496, just 7 pips below its 1.2503 open price. EUR/JPY also had its share of losses as it closed 30 pips below its 99.57 open.

The only report released from the euro zone yesterday was the German GfK consumer climate figure, which came in slightly better than expected at 5.8 when analysts were expecting it to hold steady at 5.7 this month. Although the euro was able to draw a bit of support from this upbeat release, rising borrowing costs in Spain’s short-term debt forced the shared currency to return some of its intraday gains. On top of that, credit rating agency Egan Jones downgraded its outlook on Germany because of the country’s huge exposure to euro zone debt.

Germany is set to release its import prices data and preliminary CPI today, but these reports aren’t expected to have a major impact on euro zone price action. What we should probably keep an eye out for are updates on the euro zone debt situation as well as speculations on the upcoming EU summit. Stay on your toes at all times!

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And the sell-off continues! The euro resumed its gentle slide down the charts yesterday as the markets expressed their lack of hope for a resolution in the upcoming EU summit. EUR/USD receded from its opening price of 1.2495 to end the day at 1.2467.

Comments from European leaders left traders less convinced that the upcoming EU summit will yield anything productive. While a number of euro zone countries (including Spain and Italy) have voiced their desire to have shared euro debt (eurobonds!), German Chancellor Angela Merkel has been headstrong in her stance against it.

Though the EU summit it set to start today, the markets have already been showing their low expectations and selling the euro as early as Monday. That being the case, the euro could very well see more losses if the meeting disappoints.

But keep in mind, since most are expecting very little from the EU summit, we have to consider the possibility that a little bit of good news good lead to a strong rally in euro markets.

All in all, today could be a very volatile day for the euro as the EU summit has been on traders’ minds for the past few days. Aside from that, we also have German unemployment change data (forecast to show an increase of 4,000 up from 0 in April) and the Italian 10-year bond auction on tap. Things could get explosive, so don’t forget to use stop losses!

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Aaand down the euro goes! The shared currency closed lower against the dollar and the yen yesterday. By the end of the New York session, EUR/USD was down 21 pips from its opening price while EUR/JPY was 40 pips lower at 98.89.

The euro dropped like it was hot following comments by German policymakers that they would work on coming up with long-term plans for fiscal integration in the region. The news might have upset investors as they expected European officials to come up with more immediate solutions.

Of course, it also didn’t help that we saw disappointing data from the region. It was reported yesterday that unemployment continued to rise in Germany following the 1,000 increase we saw for March. The country’s unemployment change report came in higher than the expected 4,000 rise at 7,000 for April.

The negative figure weighed on the euro yesterday as it suggests that the economic slowdown is also affecting Europe’s core nations now and not just the periphery. With that said, be sure you keep tabs on the data we have on tap for the day as their outcome may affect market sentiment as well.

At 6:00 am GMT, Germany is expected to report that its retail sales grew by 0.1% in April. Then at 6:45 am GMT, French consumer spending is anticipated to come in flat for the same month. Finally, at 9:00 am GMT, the euro zone’s CPI flash estimate for June is seen to remain steady at 2.4%.

Aside from the reports, also be on your toes for updates from the EU Summit. Signs that EZ officials aren’t willing to make compromises may just send the euro lower in today’s trading. Good luck!

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What a way to end the month! The euro bid adieu to June by posting GINORMOUS rallies on the charts. Thanks to new plans ironed out in the EU summit, the shared currency was able to post a 192-pip gain against the dollar, while rising 228 pips against the yen. Will it extend its rally today?

Finally, Europeans Union leaders have come to an agreement on how to stabilize bond markets! Three main points were agreed upon in the EU summit.

First, the EFSF and ESM will be allowed to fund euro zone banks directly without having to pass through governments. Second, the ESM will no longer hold priority status over the private sector. And lastly, European leaders have decided to use the bailout funds in a “flexible and efficient” way to stabilize markets.

If you wanna learn more about what was discussed in the EU summit, y’all only have to read Forex Gump’s article on the 3 things EU leaders agreed on. It’s a must-read yo!

In any case, the developments in the EU summit seem to have pleased the markets because once word got out, markets went crazy and a strong risk rally ensued.

But now we have to wonder how long this rally will last. Will we see a bit of profit taking? That’s a possibility we have to consider.

Today, we have the Italian manufacturing PMI due at 7:45 am GMT, and survey says we’ll see the index slip from 44.8 to 44.6. Meanwhile, the euro zone final manufacturing PMI, expected to come out at 8:00 am GMT, is slated to stay steady at 44.8. After that, at 9:00 am GMT, we’ll take a look at the euro zone unemployment rate, which most believe will rise slightly from 11.0% to 11.1%.

However, the highlight of the week won’t come out until Thursday, when the ECB is set to hold its next rate decision. Will the central bank finally slash rates and announce more monetary easing? Only time will tell!

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With all the hoopla following the EU summit dying down, the euro gave back some of its gains to start the week. EUR/USD dropped 92 pips to finish at 1.2586, while EUR/JPY finished at 100.09, down 105 pips from its opening price.

The Italian manufacturing PMI and euro zone unemployment reports both came in as expected, with the PMI printing at 44.6 and the unemployment rate clocking in at 11.1%.

But of course, the news that shook the markets was the announcement that both Finland and the Netherlands were against using the ESM to purchase government bonds. The Finnish see bond purchasing as inefficient, while the Dutch PM is also not in favor of bond purchasing.

While these two nations don’t hold enough power to completely block off the proposal, it does highlight how we are far from solving the many issues that are weighing down the euro zone. It will be interesting to see how other members of the euro zone vote on the issue of bond purchasing via the ESM and whether it can even push through.

No hard data on the docket from the euro zone, so we could see more subdued trading from euro pairs today.

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Due to the lack of market-moving events, the euro was unable to make significant strides against the safe haven dollar yesterday. The euro simply ranged the entire day, finding support at the previous day low at 1.2568 and resistance at the 1.2600 major psychological level. By the end of the day, the euro was only 22 pips higher versus the dollar.

Euro zone’s producer price index was the only report released yesterday. It came in at -0.5%, much worse than the 0.2% decline initially expected.

Today will probably turn out more exciting as a bunch of medium-tier reports are on deck. At 8:00 am GMT, euro zone’s final services PMI will be released. It is expected to print a reading of 46.8, just like the reading we saw last month. Shortly after, at 9:00 am GMT, euro zone’s retail sales report will be published. The forecast is a 0.2% increase, which is opposite the 1.0% decline seen in the previous report.

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Even with Uncle Sam off on holiday, we actually saw some decent-sized moves on EUR/USD. The pair broke through support at around 1.2570 and eventually settled at 1.2536, marking a 70-pip loss on the day.

Interestingly, the euro dropped even though both the final services PMI and retail sales reports came in better-than-expected. The services PMI printed at 47.1, marking a slight improvement from the previous month’s score of 46.8. Meanwhile, retail sales grew by 0.6% last month, after it was projected to increase by just 0.2%.

Despite the better-than-projected results, the euro still dropped as traders began preparing themselves for today’s ECB rate decision(11:45 am GMT) and most likely wanted to reduce their exposure to euro positions. Expectations are that the ECB will be cutting interest rates by 25 basis points, bringing baseline rates down to 0.75%.

While rate cuts are normally bearish for a currency, there’s no telling what may happen at tonight’s interest rate decision. For all we know, the markets will react positively knowing that the ECB is doing its part to help boost the economy. In any case, make sure you also tune in at 12:30 pm GMT, when the ECB will be making its accompanying statement, as it could provide some clues as to what the ECB has planned over the next few months.

Don’t forget, we have German factory orders due at 10:00 am GMT while Spanish and Italian bond auctions will be taking place during the London session. Factory orders are seen to have increased by 0.1% last month, which would be a sigh of relief after the previous month’s 1.9% decline. If this comes in worse-than-expected and we see bond yields on the rise, we could see some euro selling just ahead of the central bank rate decision.