Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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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!

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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!

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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!

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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.

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The euro was able to stave off the dollar’s advances yesterday thanks to some positive comments by German Chancellor Angela Merkel and French President Francois Hollande. Their upbeat comments helped EUR/USD climb 31 pips to finish at 1.2901.

According to Merkel and Holande, Greece is on track to receive it’s next round of bailout funds, as it seems everyone is on the same page and trying to free up cash for the nation. Word on the street is that the decision to give Greece more moolah will be made at next week’s EU summit.

In other news, both French and Italian industrial production figures beat market forecasts, printing monthly growth rates of 1.5% and 1.7%, after they were projected to print declines of -0.2% and -0.5%, respectively. Yes, I know, these are considered second tier reports, but if I was a euro bull, I’d take what I can get!

It wasn’t all good times though, as ratings agency Standard & Poor’s surprised the markets at the end of the New York session when it downgraded Spanish debt from BBB+ to BBB-. This means that Spanish paper is now one level away from being reclassified from investment grade to junk status! Yikes!

If Spanish debt does hit junk status, it could cause all sorts of problem for the country. For one, if it does get rated below BBB-, it would force many hedge funds and investment houses to dump their Spanish holdings as mandated by their policies. This in turn would cause yields to rise even higher which would most likely lead to Spain requesting a bailout.

For today, we’ve got no hard data on tap, but as we’ve learned the past couple of days, you ALWAYS gotta stay on your toes when trading in the forex market! You never know what might happen!

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Despite S&P’s credit rating downgrade of Spain, the euro was still able to post some spectacular gains yesterday. After it had sold-off heavily during the Asian trading session, the shared currency staged a strong rally to close the day 28 pips higher at 1.2928.

Apparently, the euro was able to recover due to a very successful Italian bond auction. The lower credit rating also gave rise to speculation that Spain would be forced to avail of a bailout soon.

The economic front was pretty much dead yesterday as only a few tier 3 reports were released. There was the final version of Germany’s CPI and the French CPI. Both didn’t have a meaningful impact on price action.

The economic calendar will be uneventful again today as only the Industrial Production report is scheduled to publish. It’s expected to show a 0.4% decrease, opposite the 0.5% gain seen the previous month. Still, with the week coming to a close, we could see a bit of volatility from the euro as traders close shop before they go off for the weekend.

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The euro ended the week on a winning note, as it posted a 28-pip victory versus the dollar to finish at 1.2956, marking the third consecutive day it closed higher. Will the good times roll or will the euro bulls come in with a weekend hangover to start the week?

The shared currency got a slight boost from industrial production figures, which printed a month-on-month growth rate of 0.6% for August. Not only was this the complete opposite of the anticipated 0.4% decline, but it also matched July’s rate of 0.6%. Tres bien, monsieur euro!

Moreover, the bulls were able to overcome some disappointing data from the IMF, which downgraded their global growth forecasts for 2012 from 3.5% to 3.3%, and 3.9% to 3.6% for 2013. IMF economists pointed to growing concerns in Asia as the main reasons for the downgrade.

The action begins in the euro zone tomorrow, when the German ZEW economic sentiment and CPI reports are due at 9:00 am GMT. If the ZEW report comes in worse than the projected reading of -14.6 or if the CPI reports indicate that inflation remains subdued, it may give the ECB President Mario Draghi and the rest of the ECB policymakers enough reason to reconsider their “no more rate cut for 2012” stance.

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Not the best way to start the week, but eh, a win is a win, right? The euro scored a measly 8-pip win against the dollar yesterday when EUR/USD finished the New York session at 1.2954.

It fared better against the yen though. EUR/JPY closed the day 34 pips above its opening price at 101.92.

Positive data from the U.S. and China were released in the past couple of days. However, word around the street is, the euro wasn’t able to benefit much from the pick up in risk appetite because Spanish bond yields once again rose!

Borrowing costs on 10-year Spanish bond yields increased by 19 basis points to 5.77% yesterday. Although yields are far from the 7% threshold (considered to be the unsustainable level) the rise reflects investor concerns about a Spanish bailout.

But don’t worry, the euro doesn’t have to be at the mercy of market sentiment! According to our forex calendar, we have a few reports on tap from the euro zone today. Make sure you watch out for them as they would probably affect the shared currency’s price action.

The German ZEW Economic Sentiment report for October is anticipated to show an improvement with the forecast up at -14.6 from September’s -18.2 reading. Meanwhile,the EZ ZEW Economic Sentiment index is eyed at -1.1.

Inflation reports are also due today! The headline CPI reading is seen at 2.7% for September while the core figure has been estimated at 1.6%. Positive figures would probably send the euro higher. Remember that ECB President Draghi mentioned that inflation pressures have somehow increased in the region. And so, higher-than-expected readings could give the ECB one more reason not to slash rates.

All economic data are due at 9:00 am GMT. Don’t miss them!

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SCOOOOOORE!!! Despite mixed economic data, the euro triple roundhouse kicked its counterparts yesterday. EUR/USD blasted above the 1.3000 major psychological handle, while EUR/JPY rocketed by 106 pips. So what fired up the euro bulls?

If you guessed Spanish bailout talks, then you better give yourself a pat on the back! Aside from conducting a better-than-expected bond auctions yesterday, my hombres in Spain spread good vibes in the markets when word got around that the government is setting up credit lines to satisfy potential bailout conditions. Of course, it also helped that two German supported Spain, saying that they’re open to setting up a precautionary credit line using the region’s rescue fund.

As for economic reports, we saw the region’s CPI clock in at 2.6% in September, only slightly lower than the 2.7% growth that markets were expecting. The core CPI came in at 1.5% as expected.

Germany’s ZEW economic sentiment report also supported the euro when it printed at -11.5, a bit better than the previous month’s -18.2 reading while the ZEW report for the euro zone inched up to -1.4 from last month’s -3.8 reading.

Lastly, Italy’s trade balance data showed a -0.60 billion EUR deficit after printing a 4.8 billion surplus last month while the euro zone showed a 9.9 billion EUR trade surplus, higher than last month’s 7.2 billion EUR figure.

No reports are expected from the region today, so keep your eyes peeled for more bailout talks from Spain and even Greece!

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Awww yeah! Six for six, baby! The euro extended its gains against the dollar in yesterday’s trading. EUR/USD rallied almost immediately after the day started at 1.3051 and finished 71 pips higher at 1.3122.

Meanwhile, EUR/JPY was up with a 65-pip win at 103.63 by the end of the New York session.

What had the euro flaunting its swag on the charts yesterday? Well, for the most part, euro bulls had credit ratings agency Moody’s to thank for their run.

It issued a statement reassuring Spain of its Baa3 rating. Remember that there had already been speculations that the agency might downgrade the country’s credit rating to junk status. And so, Moody’s decision to keep its grade on Spain steady had a lot of market participants giddy.

I wonder if the positive vibes brought about by the credit ratings agency’s decision would carry on in today’s trading. Our forex calendar doesn’t have any economic report on tap from the euro zone, however, the EU Leaders’ Summit and a Spanish bond auction are scheduled today.

Keep an ear out for what EU policymakers have to say about Spain and Greece. If they hint that they’re more willing to help out the two debt-ridden nations, we might just see the euro extend its gains. As for the Spanish bond auction, keep tabs on the demand as well as the borrowing costs that the country would have to pay.

Good luck!