Daily Economic Commentary: Euro zone

Just like the reality TV show Jersey Shore, the euro got axed in yesterday’s trading too. EUR/USD once again failed to rally past resistance at 1.2550, finishing the day 22 pips below its opening price at 1.2508. We also saw a similar price action on EUR/JPY with the pair closing with a 23-pip loss at 98.37.

What caused the euro to trade lower? A LOT.

For one, risk aversion kicked in as traders braced themselves for the Jackson Hole Symposium. On top of that, Spanish bond yields once again crept higher. The IMF also didn’t help when it released a statement saying that Greece will have a hard time implementing austerity measures.

Of course, it also did bode well for the euro that the German unemployment change report came in higher than expected. Data for July showed that the number of unemployed individuals were up at 9,000, 2,000 more people than what analysts had braced for.

Today’s the first day of the much-anticipated Jackson Hole Symposium. Make sure you keep an ear out for updates, especially on QE3 from Fed officials as they could affect price action on EUR/USD.

There are also a couple of reports from Europe on the docket today. Although they’re only considered third-tier reports, you still should pay attention to them! Who knows, they may give investors more reasons to buy (or sell) the euro in today’s trading.

At 6:00 am GMT, Germany’s retail sales report for July is anticipated to come in at 0.2%. Then at 9:00 am GMT, the CPI flash estimate for the euro zone for August is seen at 2.5% while the region’s unemployment rate has been predicted to print at 11.3%.

EUR/USD finished the week on a good note last Friday, thanks to more reports indicating that the ECB is considering flexible yield targets for shorter-maturity bonds. The pair also received a lot of support from comments by Chinese Premier Wen Jiabao who said that the Chinese government is willing to put money in Europe’s bond market.

Economic data from the region were also positive. The euro zone CPI flash estimate came in at 2.6%, slightly higher than the 2.5% forecast and the previous month’s 2.4%. Meanwhile, the euro zone unemployment rate was at 11.3%, just as expected.

This week will be a big one for the euro as an overabundance of economic events is scheduled to happen. Here’s a list of them with the most important ones in bold.

[li]Monday: Spanish Manufacturing PMI (7:15 am GMT), Italian Manufacturing PMI (7:45 am GMT), and euro zone Manufacturing PMI (8:00 am GMT)[/li][li]Tuesday: Spanish Unemployment Change (7:00 am GMT)[/li][li]Wednesday: Euro zone Retail Sales (9:00 am GMT)[/li][li][B]Thursday: ECB Interest Rate Decision (11:45 am GMT)[/B][/li][li][B]Friday: German Industrial Production (10:00 am GMT)[/B][/li][/ul]
In addition to these events, also watch out for the U.S. non-farm payrolls. It’ll be released on Friday! Even though it’s a U.S. report, it’s a major market mover that has a strong impact on most, if not all, currencies.

Super Mario does it again! While traders were still processing the weak PMI reports from the euro zone, Mario Draghi’s said a comment or two that boosted EUR/USD by another 28 pips. What the heck did Draghi say?

In a closed-door parliamentary session in Brussels, ECB head Mario Draghi stated that buying bonds with maturities up to three years does not qualify as state financing and is still within the ECB’s mandate. If you recall, market players are expecting the ECB to announce some form of bond-buying program this Thursday when the central bank announces its interest rate decisions.

It might have also helped the common currency that the euro zone’s PMI data had mixed results. While Italy and the euro zone’s manufacturing numbers were a bit weaker than their previous readings, Spain’s data surprised to the upside with a reading of 44.0 after showing a 42.3 reading in July.

Spain’s employment numbers are due at 7:00 am GMT today, followed by the euro zone’s PPI report at 9:00 am GMT. If you’re not planning to trade these reports, then you better keep an eye out for any other comments or statements that might give clues on the ECB’s plans for Thursday!

It seems few traders were willing to hold on to euros with the big ECB rate decision now just a day away. As a result, EUR/USD erased its gains from Monday, ending the day 29 pips lower at 1.2564.

It didn’t help that yesterday’s Spanish unemployment report came in much worse than expected. Spain, which suffers from a painfully high unemployment rate of 24.6%, saw the number of unemployed people seeking work rise by 38,200 in August, instead of falling by 27,800. Now, unemployment is at a 5-month high!

Today, we’ll take a good look at how the services sector is doing in the euro zone. At 7:15 am GMT, Spain is due to roll out its services PMI, which last printed a reading of 43.7. Then at 7:45 am GMT, Italy will follow up with its own version of the index, which is expected to rise from 43.0 to 43.3. To round up the PMIs, the euro zone-wide edition will be released at 8:00 am GMT. Expect it to print a reading of 47.5 once again, homies!

However, if you’re looking for numbers with more oomph, the retail sales report (due 9:00 am GMT) might do the trick. It’s slated to show a 0.2% decline in sales after revealing a 0.2% uptick in June. Should this report print worse-than-expected results, the euro could come under more selling pressure.

The euro does it again! Thanks to speculation of ECB bond purchases and risk appetite in the markets, the euro ended the day higher against its counterparts. EUR/USD closed at 1.2594 after testing the 1.2500 handle, while EUR/JPY registered a 19-pip gain. What’s in store for the euro today?

Judging by the dots on our forex calendar, the euro is in for a big day! Not only will France conduct its 10-year bond auctions, but Germany will also publish its factory orders report at 10:00 am GMT!

Of course, all other economic reports have nothing on the big boss of economic reports scheduled today. I’m talking about the ECB’s interest rate decision, folks! At 11:45 pm GMT we’ll know if the central bank has decided to cut its rates like many market players are predicting.

At around 12:30 pm GMT Super Mario will take center stage, where he is expected to announce some form of bond-buying program that would help ease the sky high peripheral bond yields. Will the ECB present a clear program and inspire risk appetite, or will it disappoint expectations by leaving a lot to interpretation? This is one market event that you shouldn’t miss, forex warriors!

So that’s what Draghi and his men had been working on! The ECB decided to keep rates unchanged at 0.75% but introduced a new program called the OMT. What the heck does this and how did the euro take the news?

OMT, which stands for Outright Money Transactions, is the ECB’s plan to help lower borrowing costs by buying government bonds from weaker euro zone nations. What’s particularly impressive and at the same time questionable about this program is that it is unlimited in size and has no minimum credit requirement. This program is intended to replace the SMP or Securities Market Program, which was introduced back in March 2010.

The central bank also cut their growth forecasts from a range of -0.5% to 0.3% to roughly -0.6% to -0.2% as they believe that there are further risks to growth. As for inflation, they raised their forecasts from 2.3%-2.5% to a range of 2.4% to 2.6% for the year.

EUR/USD initially sold off immediately right after the rate statement and dipped to a low of 1.2561 but it was able to recover and end the day in the green at 1.2637.

There are no red flags left on the euro zone’s schedule for today but that doesn’t mean it’ll all be easy breezy for EUR/USD today. Bear in mind that the U.S. is set to release another bombshell in the form of its NFP report at 1:30 pm GMT today and that this could set off more fireworks in the markets during the U.S. session. Make sure you check out my buddy Forex Gump’s NFP predictions if you plan to trade this event!

Now that’s how you end the week with a bang! Thanks to optimism surrounding the ECB’s latest proposals, the euro continued to surge last Friday, marking 168-pip and 53-pip victories versus the dollar and yen respectively. Book it, baby!

Factors that also helped the euro last Friday were rumors about the SNB’s EUR/CHF peg, as well as better-than-expected German industrial production figures.

Word on the forex rumor mill is that our buddies over at the SNB are considering raising the EUR/CHF peg from 1.2000 to 1.2200. Meanwhile, it seems that industrial production in Germany picked up by 1.3% last month, which was much greater than the 0.1% expectation.

For next couple of days, we’ve only got second-tier data in the form of the Sentix investor confidence index due today at 8:30 am GMT. Expectations are that the index will print at -29.6, which would be a slight improvement from the -30.3 we saw the previous month.

The big news of the week will be the German high court’s ruling on the constitutionality of the European Stability Mechanism on Wednesday.

This vote is very important, as it will dictate how big of a contribution Germany can make to the permanent bailout program. If the high court concludes that Germany may participate in the ESM, it could give a major boost to higher-yielding currencies. On the other hand, if the high court decides that it is unconstitutional, it may lead to the euro giving back all its gains from late last week.

Not so fast, little one! After rallying by more than a hundred pips last Friday, EUR/USD erased some of its recent gains as it closed at 1.2759, 52 pips down from its 1.2811 open price. EUR/JPY also ended the day in the red as it retreated from the 100.00 handle and closed at 99.84.

There were hardly any reports on the euro zone’s schedule yesterday, save for the French industrial production figure and the euro zone Sentix investor confidence report, both of which came in better than expected. Without any other reports that could’ve influenced risk sentiment yesterday, much of the euro’s losses could probably be attributed to quick profit taking after Friday’s rallies.

There are no major reports on the euro zone’s agenda for today, leaving euro pairs to take their cue from market sentiment. Bear in mind, however, that the Dutch are set to hold elections today while Germany’s constitutional court is set to discuss the validity of the euro zone’s rescue funds. If all goes smoothly, the euro might have a chance to hold on to its recent gains. Otherwise, a euro selloff might be in order. Keep your eyes and ears peeled for updates!

The euro is back on the winners’ list, baby! With traders anticipating good news from today’s major events, the shared currency had an easy time finding interested buyers. EUR/USD found itself 99 pips higher at 1.2858, while EUR/JPY crept up 12 pips to finish at 99.96.

Yesterday’s moves had little to do with yesterday’s economic releases… 'cause we all know the euro zone didn’t release anything noteworthy. Instead, the euro’s rally can mostly be attributed to market expectations. Traders are feeling good about today’s lineup of events and they’re hoping we’ll get positive results!

Today, the euro zone is set to hold three major events - European Commission President Jose Manuel Barroso’s the banking union proposal, the Dutch elections, and the German Constitutional court ruling (8:00 am GMT). Today’s developments could have a drastic impact on the euro zone economy over a long period of time, so the markets are keen on seeing positive outcomes.

As outlined in Forex Gump’s article on the 3 events that could rock the markets this Wednesday, each of these could have a bearish or bullish effect on the euro, depending on its outcome. If you want to learn more about these events, you only need to head on over to Forex Gump’s blog!

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!

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!

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!

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.

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!

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!

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!

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!

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.

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.

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!