Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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The euro’s victory party early on during the Asian trading session yesterday proved to be short-lived. After opening up the week strongly at 1.2783 and going to a high of 1.3093, the EURUSD immediately started falling during the European trading session, eventually closing the day – and the weekend gap – at 1.2784.

The news that triggered the wide-reaching case of risk appetite yesterday was the announcement over the weekend that the European Union and the International Monetary Fund have committed a combined rescue package to the tune of one trillion dollars to secure sovereign debt in the euro zone.

However, once the optimistic smoke cleared, the bears came clawing back in the market to completely reverse the rally and take the euro back down below the 1.2800 handle. It seems that the market is telling us that any sort of rally in the euro will remain capped and will only be an opportunity for the bears to sell more expensive levels.

With all these new developments, opinions on the long-term direction of the euro is starting to vary, as opposed to the last couple of weeks when majority of traders and analysts were betting on a move down! What’s next for the currency? As always, we’ll just have to wait and see!

No important economic data on euro zone’s economic calendar today, but President Axel Weber of the Deutsche Bundesbank is scheduled to speak in Zurich at 2:15 pm later. As a voting member of the European Central Bank, traders tend to keep an ear out for anything he says, as he could drop hints on the bank’s future monetary policy.

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Sniff… do you smell that? I think I smell something burning. It must be the euro, which got burned yet again in yesterdays trading session. Once again, the euro was dumped in favor of the USD, JPY and GBP. How low can it go?!

It seems that all the giddiness that followed the announcement of the EU/ IMF bailout plan has died down, as the euro is now trading below 1.2700 after hitting a high of 1.3096 on Monday. I turned on the tube and saw that both US and European stocks dipped a bit after a strong rise to start the week. To me, these are more signs that traders remain uncertain and that we may continue to see traders bob their heads to the beat of risk sentiment.

We could be in for a wild ride today, when German and euro zone GDP data is released starting at 6:00 am GMT. My spies over at Berlin have been telling me that German GDP growth has remained steady over the past quarter. Meanwhile, expectations are that the euro zone as a whole grew by 0.1%. What concerns me is if we see worse than expected results, could we see more euro selling?

Don’t forget that we’ve also got euro zone industrial production figures on deck at 9:00 am GMT. Forecasts are for an increase in industrial production of 1.1% during March, which would be a slight improvement from 0.7% growth seen in February. Still, my money is on risk sentiment and GDP data to be the major movers today.

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Stronger than expected GDP readings from the euro zone were unable to propel the euro higher as it dropped a few more notches against the greenback and the yen. As usual, doubts that the euro zone could make a graceful exit from the debt crisis dampened demand for the euro.

Germany reported another 0.2% economic expansion for the first quarter of the year, pushing their annual GDP growth up by 1.6% from last year. Italy, euro zone’s third largest economy, also churned out a better than expected GDP figure and boasted of a 0.5% rebound from the 0.1% decline seen in the last quarter of 2009. France’s GDP, on the other hand, came short of consensus and only posted a measly 0.1% uptick instead of the estimated 0.3% rise. Overall, the euro zone clocked in a 0.2% rise in GDP for the first three months of 2010, outpacing the forecast of a mere 0.1% growth.

Euro zone industrial production also enjoyed a sizeable gain, showing a 1.3% increase for the month of March. This came in as a pleasant surprise since the expansion was stronger than the estimated 1.1% rise. It also marks the indicator’s tenth consecutive monthly increase, suggesting that production remained resilient despite the ongoing problems in the region.

Still, concerns over the euro zone debt situation prevented the euro from banking on these upbeat economic results. It didn’t matter that stocks and other high-yielding assets were starting to lick their wounds from their losing battle last week. Commodities also posted some gains, prodded on by a gradual recovery in risk appetite. These suggest that investors are slowly gaining their confidence back while maintaining their bearish sentiment for the euro.

With European traders off on a holiday in observance of Ascension Day, barely any economic reports are due from the euro zone. Only the ECB monthly bulletin is set for release today at 8:00 am GMT but this report would most likely have a minimal effect on the euro’s movement. Keep an eye out for the next chapters of the euro zone debt drama… Last I heard, ECB President Jean-Claude Trichet urged for a closer surveillance of the government budget of each euro zone nation. And last time I checked, the EURUSD was treading closer to its 2009 low. Would we see a bounce or a break? Stay on your toes!

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Make that four days in a row that the euro lost out against the dollar. After reaching a high of 1.2685 during the Asian trading the session yesterday, the EURUSD completely reversed its path and found itself dropping all throughout the European and US trading sessions to eventually close at 1.2531.

As I’ve said time and time again, traders remain unconvinced that the huge one trillion rescue package could really solve euro zone’s debt problems. At most, the package will only push delay the inevitable. After all, how can solving debt problems with taking on more debt any good?

In any case, euro zone’s economic calendar today presents no red flags again so expect the euro to be primarily be driven by risk sentiment and data from the US. Pay special attention to the US retail sales report and preliminary University of Michigan consumer survey later on, as these reports have created quite a hefty impact on the EURUSD’s value in past.

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I’d start off by saying that EURUSD tumbled to yearly lows yet again last Friday, but this ain’t groundbreaking news anymore! For those of you counting at home, that marks the 15th time this year that the EURUSD has closed lower to end the week, as it dropped over 500 pips last week alone!

While no data was released from the euro zone last Friday, we saw the euro take another hit to close below the previous week’s low. The reason? The commere (gossip) out of Champs Elysees is that French President Nicolas Sarkozy threatened hat France would leave the euro zone if the EU/ IMF bailout plan was not supported. This wasn’t too surprising – in the past, Sarkozy has expressed that if euro zone members let other participating countries fail, then there would no need for the euro at all. Pretty idealistic, but hey, he has a point!

In any case, this sparked speculation that the euro zone may actually break up, which one again led to more euro selling. Is it time to start playing “Bye Bye Euro” at the Opera de Paris? Keep an eye out for any more news regarding these matters. If we see any signs of more unity between euro zone members, it could give the euro some much needed support.

Looking at this week’s [=&currency[]=EUR&currency[]=NZD&importance[]=&importance[]=3&importance[]=2&importance[]=1&&display=weekly"]economic calendar](Forex Economic Calendar[), no red flags will be raised today, but watch out tomorrow, when the German and euro zone ZEW surveys and consumer price index reports will be released.

Both the German and euro zone ZEW reports are expected to print readings of 47.2 and 44.2 for last April. This would mark a decline from the previous month’s releases. Given all the issues surrounding the whole euro zone, I wouldn’t be shocked if it came in even worse than expected.

Meanwhile, core CPI figures are projected to have risen by 0.8% in the last month. Euro zone officials aren’t expecting to see any spikes in inflation, which would be welcomed by the ECB. The ECB has recently said that they would be willing to buy distressed bonds (ahem Greek bonds) if it would ever come to that. Take note, buying bonds is one way for a central bank to raise liquidity in credit markets. If inflation doesn’t show any signs of rising, it would give the ECB room for more quantitative easing measures.

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The euro performed slightly better than the greenback and the commodity currencies yesterday. I know, I can’t believe it either! What gives?

With the euro now trading at its lowest level in 4 years, the likelihood of a short squeeze, a situation wherein grossly oversold conditions push the price upward, is getting higher. Traders are probably on their toes, hesitant to add to their short euro positions. Aside from that, the consistent weakening of the euro is already becoming worrisome for the ECB. And with euro zone finance ministers scheduled to meet in Brussels to discuss the impact of the ginormous rescue package, many are on the lookout for possible verbal currency intervention.

Euro zone’s economic schedule was report-free yesterday and today’s agenda looks quite the opposite. Euro zone’s busy economic day starts off with the release of the French non-farm payrolls report, which could show a 0.1% increase in employment for the first quarter of the year. The actual figure is due 6:45 am GMT.

Later on, Germany will release the results of the ZEW economic sentiment survey. This report, which is due 9:00 am GMT, could show that sentiment turned sour from 53.0 to 47.1 in May, possibly because of the prevailing debt concerns in the euro zone. Also at 9:00 am GMT, euro zone will release its CPI and core CPI readings for April. These could show that price levels rose by another 1.5% while core prices climbed by 0.9%. Euro zone is also set to release its overall ZEW economic sentiment reading for May, which could dip from 46.0 to 44.2. Worse than expected figures could keep the euro on its downward track.

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The euro found itself tumbling across the board once again yesterday when news hit the wires that Germany decided to ban the naked short selling of certain stocks and European government bonds. After hitting an intraday high of 1.2444, the EURUSD sunk to close the US trading session 1.2209.

Traditionally, traders must first borrow a stock in order to sell it. However, due to various ambiguities and loopholes in financial regulations, traders could sometimes sell a stock without borrowing it. This sometimes causes problems, as naked short selling could artificially drag price down. By totally banning naked short selling, German financial officials hope to put a floor on the broad-based decline of euro zone’s equity markets.

Data on euro zone’s cupboard also intensified the already bearish sentiment of traders toward the euro. For one, the German ZEW economic sentiment survey came out with a reading of 45.8 for this month, a significant difference from the 44.2 forecast. In addition, euro zone’s core consumer price index showed that the prices of consumer goods and services only rose 0.8%, and not 0.9% like initially expected.

No data on euro zone’s economic cupboard today, but don’t expect volatility to dry out. The FOMC meeting minutes, which will come out at 6:00 pm GMT later from the US, would probably lead to some serious movement on the EURUSD.

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Make that back to back! For the first time in three weeks, the euro was able to post gains on consecutive days! The EURUSD closed yesterday at 1.2511, after hitting an intraday high of 1.2599. Could we see more of the same today?

The only piece of data that was released yesterday was German producer price figures. Apparently, German manufacturing goods prices rose by 0.8% last April, which was slightly higher than initial estimates of 0.6% growth. Could this be the effect of a weak sauce euro? Remember, a cheaper currency makes goods cheaper, so it shouldn’t be too surprising that prices are rising.

The question to ask though, is whether a rise of prices can be sustained and what the European Central Bank will do about it. In my opinion, I think it will be more drastic prices increases before the ECB gets its butt and actually raises interest rates to counter rising inflation. With all the weakness in the euro zone, the ECB might have no choice but to keep rates at current levels.

Speaking of the ECB… there are rumors circulating the Eurorail that the ECB has actually been intervening in the markets! Yowza! Now, I’m not too sure whether they have actually been dipping their hands into their currency reserve cookie jar to buy up the euro. Others are suggesting that it was in fact the Swiss National Bank who intervened in the market, as they have had a history of doing so in the past.

In any case, I suspect that ECB wants to make traders believe that they are capable of intervening into the markets, just to keep them from shorting the hell out of the euro! Be careful out there!

Today, we’ve got a slew of purchasing manager’s index reports coming out from France and Germany, as well as the German IFO business climate report. Analysts forecast that the IFO report will post a score of 101.9, a slight increase from the previous month’s posting of 101.6, which would signal that business confidence is still up within the euro zone.

However, given all the recent news and the EU/ IMF bailout package, could we see a drop in the readings? If the reports fail to hit consensus, we may just see the euro go down the mud slide and make a big splash by the end of the day!

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Well wadya know? All of a sudden, the euro has now posted three consecutive gains versus the dollar, with the EURUSD finishing at 1.2573. The only question is, has the pair found a bottom? Or was this merely a case of profit taking?

Purchasing managers’ index reports from Germany and France largely came in disappointing, with almost all of them failing to hit their targets. The German manufacturing and services PMIs printed readings of 58.3 and 53.7, down from the previous month’s scores of 61.5 and 55.2.

In addition, the German IFO business climate report also failed to meet the consensus reading of 101.9, dipping slightly lower to 101.5. The results of these reports suggest that business managers became less optimistic over the state of the economy. Not too surprising if you ask me – after all, since the start of all this debt drama, sentiment towards the euro zone has taken a bearish stance. It shouldn’t come as a shocker that business managers felt the same way too!

Given the mixed data from last Friday, there is a chance that the recent gains of the euro were due to traders covering their short positions. As I said last week, there are rumors that the ECB will intervene in the markets, so perhaps traders are just becoming more cautious and decided to take profits to close out the week.

No major news coming out over the next couple of days, but lookout on Wednesday, May 26, when the German GFK consumer climate report will be released. With all the hullaballoo over the recent aid package, are Germany consumers still spending their hard-earned euros? Or are they beginning to stash away those ‘precious’ euros for a rainy day?

To recap – the euro ended last week on a 3-day winning streak despite the poor data released last Friday. Could this be a bottom, or did profit taking take place? No biggies on the economic calendar over the next couple of days, but stay tuned as you never know what may happen in the forex markets!

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Even though most European traders were off on a holiday, it was just another manic Monday for the EURUSD as it chalked up over 150 pips in losses. The EURJPY was also off to a bad start and crashed to a low of 111.23 during the US session.

After pulling up for the past few days, it seems that the EURUSD has resumed its downtrend. So much for enjoying those gains from speculations of an ECB intervention, hah! With everything that’s going wrong in the euro zone, word on the grapevine is that the euro could very well be used to finance carry trades. Debt problems in the region could prevent the ECB from hiking rates anytime soon, which means that the interest rate differential between the euro zone and other major economies would most likely increase later on. Then again, it’s tough to tell whether other nations would be sucked into this debt mess as well…

On the economic front, only a couple of reports are due from the euro zone today. First, the Italian retail sales figure for March is due 8:00 am GMT and is expected to show another 0.1% uptick. Later on, at 9:00 am GMT, the euro zone industrial new orders report will be released. For the month of March, a 2.2% growth is projected. If the actual figure meets the consensus, it would mark a stronger increase than the 1.5% rise in February and could provide the euro some support.

Other than that, keep an eye out for updates on the debt crisis in the euro zone. Last I heard, the spotlight is now shifting away from Greece to the other members of GIIPS. That’s Italy, Ireland, Portugal, and Spain!

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After falling sharply during the Asian and morning European trading sessions, the EURUSD was able to bounce back and rally higher once the US trading session went underway. The sunk to 1.2178 before rebounding to close the day at 1.2334.

As usual, the catalyst for the drop of the EURUSD early on was risk aversion. Apparently, tension between the two Koreas escalated yesterday, which gave an excuse for currency traders to rally back to the safety of the dollar. On top of that, weakness in Spain’s financial sector is starting to hit mainstream. Heck, even better-than-expected results on the Italian retail sales (0.5% actual vs. 0.1% forecast) and the new industrial orders report (5.2% actual vs. 2.2% forecast) failed to provide support for the euro!

Thankfully, the EURUSD bears started losing steam when the US trading session went underway. The EURUSD found itself tempering its losses when the CB consumer confidence index beat expectations and triggered a slight case of risk appetite.

According to the economic calendar, the important report to keep an eye out for today is the Gfk consumer climate survey at 6:00 am GMT. The survey, which is typically used to determine how financially secure consumers are feeling, is predicted to print a reading of 3.5 for this month, lower from the 3.8 reading seen in April. Given the negative expectations on the report, we could see the EURUSD take another hit later on.

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We’re going down, down… down, down… Oh sorry, I was listening to that new single by the band “The Euro Bears”! Its the new in thing! Just look at the EURUSD, which dropped 140 pips from its opening price. Will it set a new record low?

It looks like risk aversion is causing these moves in the EURUSD, and this can be clearly seen in equity markets as well as economic data released yesterday. First, equity markets on both sides of the Atalantic slid and in turn, we saw the euro fell as well. Interestingly, even when stocks rose, the euro continued to dip! It seems like traders are getting jittery over their euro holdings and one by one, are starting to dump the euros in favor of other currencies and assets.

Economic data released from the euro zone also didn’t give the euro any support. The GFK German consumer climate report printed a reading of 3.5, which failed to meet the consensus score of 3.7. I don’t blame the Germans for being a little less optimistic. After all, there is a lot of uncertainty regarding all the euro zone debt problems and the bail out plan itself.

Later today, the preliminary German consumer price index will be released. Consumer prices are expected to have risen by .10% from April to May. Now, a rise in consumer prices does signal rising inflation, which the ECB may take as a sign to raise interest rates down the road. However, I don’t think that the markets will pay too much attention to this – the focus is really on the bailout plan. Besides, it’s starting to look more and more like the euro zone’s recovery may be unstable, so the ECB may look to keep interest rates at low levels in the mean time.

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Woah! This caught me by surprise… The euro enjoyed a strong rally yesterday as the latest developments on the euro zone debt situation turned out to be good news. Did you see how the EURUSD jumped from the 1.2200 area to a high of 1.2385?

Remember those speculations about China wanting to dump their Eurobond holdings? Well, China flat-out denied these allegations, easing investors’ fears that the euro zone won’t be able to survive the debt crisis and allowing the euro to breathe a sign of relief.

Aside from that, it seems that euro zone nations are bent on working on their own budget shortfalls, careful to avoid a repeat of the Greek debt drama. Spain’s approval of its 15 billion EUR austerity plan and Italy’s 26 billion EUR budget cut program sparked hopes that these nations would be able to trim their deficits soon. Traders found comfort from these news but would this feeling of calm last? I remember my buddy Forex Gump mentioned in his recent article the negative side-effects of austerity programs, which could lead to a drop in employment and slower economic activity down the line. Now that’s something to watch out for…

Meanwhile, Germany seems to be doing fine and dandy as its CPI reading for May hit the target. Euro zone’s largest economy reported a 0.1% increase in price levels for the month, which was a nice rebound over the 0.1% decline seen in April.

Today, Germany is set to release a report on import prices at 6:00 am GMT. Even though this report is slated to have a mild impact on the euro’s movement, it might be helpful to find out if the actual figure meets the consensus of a 1.4% increase. Later on, ECB official Axel Weber is due to deliver a speech at 12:30 pm GMT. Stay tuned for his comments concerning the ongoing debt crisis in the euro zone since these could also have an effect on the euro’s action.

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Just when no economic reports were scheduled to be released and you thought it was safe to go out and play, the markets were hit with some surprise news that sent the euro flailing lower once again. After hitting an intraday high at 1.2453, the EURUSD tumbled lower and finished the week at 1.2271.

The “surprise” news that hit the markets was that Fitch, an international debt ratings agency, downgraded Spain’s sovereign debt rating from AAA to AA+. Still not junk bond status like Greece’s debt, but nevertheless, this caused some traders to squirm on the edge of their seats. Once again, more bad news for the euro zone meant more euro-selling.

In other news, German import prices data revealed that German consumers are paying more for imported goods. The report revealed that import prices rose by 2.0% last month, slightly higher than the expected 1.4% increase. Is this a sign of rising inflation? If you ask me, this might just be a cause of a weakening euro. Is this a problem? Well, some analysts suggest that the weaker euro could help stimulate exports because it would make euro zone goods relatively cheaper to other countries. It’ll be interesting to see what happens if import prices continue to jump in the coming months.

Today, ECB President Jean Claude Trichet will be delivering a speech entitled “The Policy Response to the Crisis in Korea and other Emerging Market Economies”. See – even Mr. Trichet is worried about what’s happening in Korea and it’s literally on the other side of the world! My partner in crime Forex Gump recently posted something in his blog about the tension in Korea and the role of Asia in the global recovery. I’d take a look at it to gain some insight on this issue.

Aside from Trichet’s speech, lookout for the preliminary consumer price index report coming out at 9:00 am GMT. Analysts are projecting that the index has risen by 1.6% on a year-on-year basis. It looks like inflation is slowly creeping up to the ECB’s target rate of 2.0%! Still, as I’ve said time and again, given the instability in the euro zone right now, I highly doubt this would lead to speculation that the ECB will be raising interest rates any time soon.

Other reports you should keep an eye on this week are the German and euro zone retail sales and unemployment data coming out throughout the week. If these reports show more weakness in the euro zone economy, it could send the euro to new lows.

One thing I’d like to point out is that both the London and New York markets will be closed today for an extended holiday. With Spain’s downgrade still lingering in the minds of traders, we may just see some wild swings tomorrow when the Brits and Yankees come back. So for today, we may see more range like trading, but what about tomorrow? As Big Pippin hinted in his chart art today, could we be in line for a breakout soon due to a spike in volatility?

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As expected, the low liquid conditions kept the euro trading in a tight range against the dollar yesterday. The EURUSD simply paced back and forth between 1.2256 and 1.2334 before ending the day at 1.2303.

Euro zone’s preliminary consumer price index that came out yesterday fell below expectations and only printed a 1.4% rise. With euro zone’s inflation rate still far off from the 2% target and the ongoing debt problems in euro zone, the speculation of an rate hike from the European Central Bank is probably close to nil.

Today’s economic calendar presents very little to worry about, but keep an eye on a reports coming out just in case.

The reports start coming in at 6:00 am GMT, when Germany publishes its report on retail sales for the month of April. The expectation is an increase of 0.8%, opposite the 1.6% decline seen the month before. Then, at 9:00 am GMT, euro zone will release a report on unemployment. Economists predict that joblessness in the euro zone probably rose to a record high of 10.1% in April. Looks like traders will find more reasons to sell the euro…

In any case, like I mentioned yesterday, we may be in line for some drastic one-directional moves today as traders return from their long holiday weekend! Keep an eye on those major technical levels!

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The euro dropped it like its hot yesterday and hit a fresh low of 1.2111 against the greenback. Its performance against the yen was also weak as it dropped to a low of 109.77 during the US session.

Not even the strong economic reports from Germany were able to give the euro a boost yesterday. Germany posted better than expected retail sales and employment figures for April, highlighting the resilience of euro zone’s largest economy amidst the ongoing debt crisis. It turns out that the 1.0% increase in German retail sales was actually spurred by the 45,000 increase in hiring during the month. After all, if more people have jobs, they are more likely to spend, right? It seems like everything’s working out well for Germany…

Unlike the German economy, the entire euro zone has been taking one tough beating after another. Right now, many are worried that euro zone nation’s efforts to cut down their deficits through austerity programs would eventually drag down their economic growth. Yikes, that looks like a lose-lose situation to me! On top of that, news that the ECB is also buying bonds from France gave rise to fears that euro zone’s second largest economy could also be suffering from bad debt.

With no economic reports on euro zone’s schedule for today, the euro could still be weighed down by speculations of a major banking crisis in the region.

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The euro managed to stave off any big losses yesterday, with the EURUSD treading around the 1.2200 handle. It looks like traders are waiting for more catalysts before triggering any big move.

The only semi-significant news that came out yesterday was the euro zone producer price index, which came out to show that producers have raised the prices of their goods by 0.9% from March to April. This marked the largest month-on-month increase this year.

Now, I believe that producer prices probably rose because of the recent slide of the euro, which actually makes the importing of foreign raw materials and supplies more expensive. In turn, producers have to raise the price of their final products to compensate for the rise in input prices.

The other big news that hit Twitter accounts around the world was that Iran would be selling off its euro reserves! Apparently, Iran’s central bank will begin the first phase by selling about 15 billion euros. While this didn’t move the markets too much, this is an interesting issue to keep an eye on. Remember awhile back that the euro got a nice boost once news broke out that China would not be selling its euro reserves. However, if we start to hear rumors that other central banks have plans to sell off euro reserves, it may just trigger widesperad euro selling.

We could see more movement today as the euro zone services PMI report and the monthly consumer price index report come out at 7:30 am GMT. The PMI report is expected to show no change from the previous month’s score of 56.0. This would indicate that managers of service oriented business remain as confident about the economy as they did in April.

As for the CPI report, could we be in for an upside surprise? After all, yesterdays PPI report came in slightly better than expected. It’ll be interesting to see whether or not we see a broad based increase in prices. Take note that last month’s report showed an increase in prices by 0.3%. While I don’t think traders will jump too much even if prices are rising faster than anticipated, this is something to keep an eye on down the road.

Lastly, don’t forget about retail sales data due at 9:00 am GMT. After showing no growth in March, retail sales are expected to have picked up by 0.1% from the previous month. Now, with traders keeping their eyes on the lookout for more reasons to short the euro (not like they haven’t found enough already!), if we see a disappointing figure in retail sales today, it may just lead to a break of the support levels that Big Pippin pointed out in today’s chart art.

To recap… The euro staved off major losses yesterday, but brace yourself for biggers move to end the week, especially with all the data coming out. Also, look out for more news regarding this Iran central bank euro reserve sell off – it may just be the start of something significant.

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After rallying slightly during the Asian session yesterday, the EURUSD was sold off again on the news that Hungary could end up just like Greece. The EURUSD closed the US trading session at 1.2154, last week’s low.

According to the newly installed ruling party of Hungary, the country’s budget deficit might hit go as high as 7% of its GDP, which was almost two times the 3.8% deficit initially expected. This triggered another round of risk aversion, with the euro taking the brunt of the burn.

Data that was released failed to provide any support for the euro. Even though the services purchasing managers’ index slightly beat expectations (56.2 actual vs. 56.0 forecast), euro zone’s report on retail sales showed a drop of 1.2% for the month of April, which was opposite the 0.1% gain initially expected.

Although no high-profile economic report will be coming out from Europe today, don’t think that the euro’s price action will be unexciting! Once the US trading session kicks in, one of the most watched economic reports, the US non-farm payrolls, will be released. If you want to know more about the event, head on over to Forex Gump’s blog, as he outlines the possible effects of the release on price action.

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“Gimme a break!” yelled the euro last week. And break it did! The euro breached another key support level and fell to a low of 1.1955 last Friday as the debt situation in the euro zone worsened.

How low can the euro go? It seems that not even the ECB or the G20 are willing to stop the euro’s fall since the weakening currency could be beneficial for the euro zone nations. In fact, the French Prime Minister even remarked that parity between the euro and the US dollar could be good news. After all, a cheaper euro could make euro zone exports much cheaper and more attractive to other nations, which could eventually boost economic activity in the region. Aside from that, a weak euro help push inflation closer to the ECB’s target.

But that’s not all… News of Hungary’s possible default also weighed the euro down last week. Even though Hungary isn’t really part of the euro zone, another European debt crisis in the works sparked fears of a debt contagion all over again. It didn’t help that risk aversion, which resulted from weaker than expected US non-farm payrolls figures, forced investors to flee towards the safe-haven US dollar.

Updates on the euro zone debt condition could once again determine the direction of the euro this week but don’t forget to stay tuned for upcoming economic reports! A few low-key reports, namely the German factory orders and industrial production figures, are on deck for today and tomorrow respectively. Germany’s factory orders are slated to post a 0.1% dip in April, unable to sustain its stellar 5.0% gain in the previous month. Meanwhile, industrial production could post a mere 0.7% uptick, which pales in comparison to the 4.0% growth seen previously.

The main event for this week is the ECB’s rate statement on Thursday 11:45 am GMT. The central bank is expected to keep rates on hold a 1.00% but traders are probably more interested to hear about the policymakers’ thoughts on the euro’s depreciation. Comments favoring the euro’s weakness could push the currency even lower this week.

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With no major news or surprises yesterday, the EURUSD didn’t tumble down much further, as it only fell 50 pips from its opening price. Is the EURUSD about to find a bottom?

I’m not too sure about a bottom quite yet, as traders are still cautious over the state of the euro. After all, it’s starting to look like Hungary might be following Greece’s footsteps! Even though Hungary is not part of the euro zone (although it was planning to!), any concerns of debt problems from any European country could cause a ruckus as this is the main focus of the markets right now. I’ll keep y’all posted on any developments on this matter.

The only data that was released yesterday were German factory orders, which came in much better than expected. The report printed that orders rose by 2.8% in April, after they were expected to have fallen by 0.1%. Now, I suspect that this may be an effect of the cheaper euro. A cheap local currency helps stimulate demand because it effectively makes export goods more affordable.

We’ve got more German data on tap later, as industrial production data is due at 10:00 am GMT. Industrial production is projected to have picked up by 0.7% in April. Seeing as how we got a nice surprise from factory orders, can we expect the same in today’s report?