Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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Euro bears hit the throttle yesterday as disappointing consumer sentiment data and cautious words from Bundesbank President Weber proved too much for the euro to overcome. While the euro held its own against the yen and franc, it performed badly against the pound and Greenback. EUR/GBP dropped sharply to record a 134-pip slide and closed at .8746. Likewise, EUR/USD didn’t reach much higher than its opening price of 1.3969 and settled 117 pips lower for the day.

Yesterday’s German GFK consumer sentiment report was a letdown as it revealed sentiment remained flat at a reading of 4.9 in October. As the euro zone’s largest economy, Germany has been carrying more than its fair share of the load to revive the region’s economy. But maybe analysts were a bit overoptimistic with their forecasts for a reading of 5.1

The recent string of strong economic reports that Germany printed hasn’t caused Weber to throw caution to the wind. In his speech yesterday, the Bundesbank president said he doesn’t think his country’s recovery is self-sustaining yet.

Germany has risen from recession with a rapid 2.2% growth in the second quarter of 2010, but Weber is expecting growth to taper off in the second half of the year. He also brought up the importance of sound public finances in the euro zone to the stability of the euro.

Better bring your A-game today because the euro is set to roll out a trio of potential market-movers.

The German preliminary CPI figures are due today. Analysts are expecting to see October erase last month’s 0.1% decline with a 0.1% increase in prices.

At 6:45 am GMT, France will be publishing its consumer spending report, which is slated to show a 0.4% growth in September following August’s 1.6% downtick.

Last but not least, we take a look at how much money is in circulation in the euro zone as the M3 money supply report hit stands at 8:00 am GMT. According to forecasts, we’ll likely see a 1.4% increase in the money supply for the month of September after August posted a 1.1% uptick.

You know the drill! Better-than-expected figures are usually bullish for the euro, so be on the lookout!

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As if Tuesday’s loss wasn’t enough, the euro forged a new week low against the USD yesterday as investors continued to cut back on their short positions against the USD. Mixed reports that leaned towards the negative end of the spectrum also kept the euro from holding its ground. At the end of the day, EUR/USD closed 86 pips lower at 1.3767.

With the U.S. Fed meeting drawing ever closer, traders are beginning to reduce their short positions against the USD at the expense of the euro. I guess with so much uncertainty surrounding the U.S., everyone is looking to limit their risk exposure.

It didn’t help the euro bulls’ cause that yesterday’s releases were downers.

Out of the four medium-tier reports published yesterday, only the September French consumer confidence data came in better than expected. It printed higher than the previous reading of -35 and bested forecasts for a reading of -37. But at a reading of -34, September’s figure really isn’t much to get excited over, don’t you think?

Then the bad news began with the release of the region’s M3 money supply data, which fell below the expected 1.4% year-on-year increase when it printed a mere 1.0% uptick. Money supply shows the immediate effect of monetary policies and gives clues about future inflation. That being said, it doesn’t look like we’ll be seeing any tightening from the ECBany time soon judging by these numbers.

The largest economy in the euro zone also failed to boost the euro when it declared that German inflation in October matched that of forecasts for a 0.1% increase in prices.

Making matters worse, the unemployment change fell short of expectations when it revealed a decrease of 3,000 in the unemployment pool. Sure, a decrease in this department is always better than an increase, but the actual results are about a tenth of what analysts were hoping to see and are a major downgrade from the previous month’s record of a 40,000 decline.

Could this be a sign that the labor market has already maxed out? Maybe! After all, Germany’s unemployment rate remained flat at 7.5% according to Labor Minister von der Leyen.

After yesterday’s slew of reports, you’ll be relieved to find out we have no hard-hitting data on tap for today. But wait a second, bro, we do have a couple of speeches worth listening to!

At 7:00 am GMT, Bundesbank President Weber is scheduled to speak about global imbalances and may drop hints about future policies and the outlook for the German economy.

Then at 8:30 am GMT, ECB President Trichet takes his turn at the stand and holds a press conference in Pafos. As the euro zone’s main man, Trichet has the power to move the markets with clues about future moves.

Don’t forget, hawkish words are usually bullish!

353

And we’re back in the game! After losing ground against the greenback for the past few days, the euro rebounded up the charts on a ripple of risk appetite and profit-taking in the markets. EUR/USD jumped by 162 pips from its open price at 1.3929, while EUR/JPY closed at 112.88 after dropping to an intraday low of 112.19.

No major economic report was released yesterday, but European Central Bank members made headlines with their speeches. While Axel Weber expressed his appreciation over the latest rise of the yuan, other ECB members are expressing concerns over their interest rates that could be “too low for too long” for their liking. Hmm, does this mean that the ECB is expecting inflationary risks soon?

We might know more about the state of the region’s economic health when the German retail salesis reported at 6:00 am GMT. The data is expected to print a 0.5% growth after declining by 0.4% last August, but a higher figure might spur on the bulls to push the euro up the charts.

The CPI flash estimate report at 9:00 am GMT can also give us clues on the region’s inflation. The annualized number is expected to clock in at 1.8% like September’s figure, but a higher number could support the ECB members’ concern over the region’s low interest rates.

Lastly, we have employment figures on deck. The unemployment rate for the whole region will be released at 9:00 am GMT and the number is expected to remain at 10.1%. Meanwhile, market geeks estimated that Italy’s unemployment rate reported at 10:00 am GMT will climb to 8.3% after printing 8.2% last August.

Be on your toes for these reports!

354

Oomph! The euro took combo-like hits against its major counterparts last Friday after not-so-stellar economic data and worries on the region’s sovereign debts attracted currency bears like sweet honey.

EUR/USD plunged to an intraday low of 1.3807 before ending the day only 11 pips lower at 1.3918. Meanwhile, EUR/JPY leveled off to its 87-pip loss after dropping to an intraday low of 111.53.

It seemed that the bulls were none too happy that the ghosts of the region’s sovereign debts popped up in time for Halloween. Apparently, Germany is cooking up some plans that will make Greek, Irish, and Portuguese bonds even less attractive in order to cushion the impact of the additional 440 billion EUR bailout fund. Yikes!

Of course, the euro didn’t get any help from its economic data last Friday. Germany’s retail sales surprisingly printed a 2.3% fall in September, its second monthly drop in a row. Uh-oh, does this mean that demand is losing steam in the region’s largest economy?

Meanwhile, the unemployment rate for the region remained stubbornly high at 10.1%, while the annualized CPI hit the 1.9% mark, which is the highest level in almost 2 years. This highlighted the European Central Bank’s dilemma on its “too low for too long” interest rates, and made the markets jumpier than Cyclopip’s bunnies on buying the currency.

Will the euro catch any break this week? The action will start on Tuesday when the final manufacturing PMI is released at 9:00 am GMT. The final services PMI on Thursday at 9:00 am GMT will follow, and a figure higher than the previous 53.2 index number just might attract some currency bulls.

Also look out for the monthly producer price index report on Thursday at 10:00 am GMT, which will be released just before the big ECB interest rate decision at 12:45 pm GMT and its press conference at 1:30 pm GMT. Hmm, maybe we can get a few clues on the ECB’s action against its interest rate dilemma.

The week will end with two reports on Friday, starting with the region’s retail sales report at 10:00 am GMT. The data is expected clock in a 0.1% growth in September after falling by 0.4% last August. Germany’s factory orders report is the last to come out at 11:00 am GMT, and a figure higher than the estimated 0.5% growth in September could convince the euro bears to ease up on their partyin’.

Don’t let me catch you snoozin’ this week!

355

“Try and try until you succeed,” my old man always says. EUR/USD could learn a thing or two from him. Action on EUR/USD yesterday saw another failed retest of the 1.4000 psychological handle. At the end of the day, EUR/USD closed at 1.3893, down from its opening price of 1.3963.

The markets have been quite choppy lately as the U.S. FOMC statementdraws ever closer. EUR/USD has been no exception, especially since yesterday was a French banking holiday. The lack of reports also contributed to spotty trading, as traders were forced to trade mixed U.S. data.

Today looks as though it will be just as light for the euro zone. The only report on tap is the October final manufacturing PMI, which will probably match September’s reading of 54.1. Higher-than-expected figures from this report may support euro buying as it is often used as a leading indicator of economic health.

Bulls have been waiting eagerly for more signs of recovery from the euro zone. An upside surprise from this report would mean that the manufacturing sector is faring better than expected, which could mean that spending has been picking up as well. In any case, it may just cause them to stage a mini rally, so don’t blink at 9:00 am GMT!

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Why hello there manufacturing PMI! Thanks to better-than-expected manufacturing PMI figures, the euro was able to post stellar gains over other major currencies. EUR/USD closed the day at 1.4034, almost 150 pips higher from its Asian session price. Meanwhile, EUR/JPY ended the day with a 141 pip win at 113.33.

Euro zone’s final manufacturing PMI for October was reported to be at 54.6, which was higher than both forecast and the previous month’s reading of 54.1. The small uptick in the reading means that managers grew more optimistic, and that they believe that conditions in the manufacturing industry have improved.

No important news on euro zone’s economic calendar today, but don’t think that we won’t see any volatility! Once the U.S. trading session comes along, we’ll be treated to a huge amount of high profile economic events, which will create some fireworks in the charts.

Of course, I’m talking about the release of the ADP’s version of the NFP report, the ISM non-manufacturing survey, and the super important FOMC statement. If you want to know more about it, go check out my U.S. roundup!

357

When the dollar’s in trouble, we all know who’s happy… the euro! The announcement of the slightly more aggressive quantitative easing program of the Fed helped the EUR/USD bulls push convincingly above 1.4100 handle yesterday. By the end of the U.S. trading session, EUR/USD was trading at 1.4143, more than 100 pips from its opening price during the Asian session.

No particularly important news event happened in euro zone yesterday, so the traders’ focus turned mostly to the FOMC’s decision. According to the FOMC, it will buy up an additional 600 billion USD of securities over the next 8 months, which is slightly higher than the forecast of 500 billion USD over 6 months.

Now that’s done and over with, it’s time to turn our attention to the ECB. Today, at 12:45 pm GMT, the ECB will be put on the chopping board… errr, spotlight, as it announces its decision on interest rates.

The market widely expect for the bank to keep its rates steady at 1.00%, so pay attention closely to the accompanying statement. If the bank comes out with any hawkish remarks (e.g. interest rate hikes), then prepare for another round of euro buying!

358

A strong rally at the start of the London session open gave the euro an early boost to hit a new 9-month high against the dollar. It found further support later in the day with the release of a couple of positive reports and the ECB’s press conference. When all was said and done, EUR/USD was finally able to close above 1.4200, rising 47 pips for the day.

When you think about it, yesterday was practically a gimme for the euro. The Fed’s bond-buying plan was still very fresh on traders’ minds and kept them from flocking back to the dollar. But while the Fed has given in to further quantitative easing, the ECB is holding its ground.

ECB President Jean-Claude Trichet announced yesterday that interest rates will remain at 1.00%. No surprises there as it was already widely expected. More noteworthy is what he said about the economy. According to Trichet, the “momentum of recovery remains positive,” and inflationary pressures are still subdued.

By the way he spoke, it seems like the ECB will be sticking to its exit strategy. If you recall, the ECB has promised to provide banks with unlimited liquidity. But many have been calling for an end to the liquidity injections, including Bundesbank President Axel Weber. Though Trichet said the bond purchase program isn’t over, the confidence in his voice seems to suggest an easing off the liquidity pedal in the future.

In other news, the final services PMI reported slightly higher than expected at 53.3 to beat forecasts for a repeat of the previous month’s reading of 53.2. On the other hand, the euro zone PPI, a measure of the change in price of goods sold by producers, rose 0.3% just as expected in September, following August’s 0.1% increase.

Today, we have the euro zone retail sales figure to at 10:00 am GMT. After seeing August post a gloomy 0.4% decline in sales, look for another euro rally to take place if retail trade rebounds strongly and records growth above the expected 0.1%. This report has printed both ups and downs in the past few months, so stay on your toes because you never know what you’re gonna get this time around!

Then at 11:00 am GMT, Germany’s factory orders hits newsstands. The September edition of this report is expected to show that the increase in orders softened from 3.4% to just 0.4%. It’s particularly interesting to see how the markets will react to this given that Germany is the euro zone’s largest economy and that this report gives us a look at future manufacturing activity.

359

Just like Robert Downey Jr.’s comedy flick “Due Date,” the euro was overshadowed by almost all of its counterparts in Friday’s trading. The shared currency lost the most against the dollar with 174 pips as EUR/USD closed at 1.4032, then the Swissy with 122 pips as EUR/CHF ended at 1.3491, and then the yen with 68 pips as EUR/JPY parked at 114.02 at the end of the week.

So what caused the euro’s flop?

Naysayers cite that it was the combo of strong dollar-lovin’ that came with the better-than-expected NFP report and the disappointing economic figures we saw from Europe.

It was reported last Friday that retail sales declined by 0.2% in September and fell short of the market’s 0.1% growth forecast, while German factory orders erased the 3.5% increase it posted previously when it printed at -4.0% and missed the 0.5% consensus. Tsk, tsk…

Then there were also worries over the Europe’s sovereign debt that kept the shared currency under selling pressure even before the release of the economic reports.

There were rumors that a Spanish bank, Banco Bilbao Vizcaya Argentaria (BBVA), was having liquidity problems when a huge crowd was spotted outside of it. What the financial markets didn’t know at that time was that all those people were actually just marathon runners lining up to claim their shirts. I’m not kidding, this is forrealz yo!

Although the gossip was found to have been groundless, you may want to pay more attention to the market’s sentiment as this event highlights how fragile it is now. Hmmm, is that risk aversion I smell?

Anyway, make sure you don’t miss the roster of economic reports we have for today. At 7:00 am GMT, we’ll have Germany’s trade balance report for September which is anticipated to show that exports outpaced imports by 13.2 billion EUR.

Then at 9:30 am GMT, Sentix’s Investor Confidence report will be on tap. The market is anticipating to see that analysts and investors are more optimistic on the euro zone’s economic health in November with the forecast higher at 10.1 than October’s 8.8 reading.

Lastly, we have the German industrial production for September at 11:00 am GMT which is eyed to come in at 0.6%. A higher-than-expected figure will probably be bullish for the currency as this would imply that industrial activity expanded during the month.

You may also want to take note of the Greek elections. Some of our buds here in the FX hood were worried that if the ruling party headed by Greek Prime Minister George Papandreou loses, we could see the euro tumble further down the charts as this would reflect the general population’s negative sentiment toward austerity measures.

Remember to be careful out there, aight?

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Euro-uh-oh-oh-oooh, was caught in another bad romance with the bears yesterday. The shared currency started the week with a 120-pip loss against the Greenback as EUR/USD slipped below the 1.4000 handle and ended Monday at 1.3917. Against the yen it gave up 112 pips as EUR/JPY settled at 112.95 at the day’s close.

Concerns about Ireland not being capable repaying its debt weighed down the euro in yesterday’s trading. Word on the street is that the country already hollered an S.O.S. to use the European Union’s Financial Stability Facility (EFSF). Uh, oh…

It appears like the ghost of sovereign debt was far too scary for investors to handle. Heck, not even EU Economic and Monetary Affairs Commissioner Olli Rehn’s clarification that Ireland hasn’t asked for aid yet was enough to keep the euro from sliding.

Sigh. If only the lineup of economic reports was enough to get investors going gaga for the euro. Let’s take a look at them, shall we?

Germany’s trade balance report for September printed a 16.8 billion EUR trade surplus and beat the 13.2 billion EUR forecast. The Sentix Investor Confidence index also came in higher than expected at 14.0, overshooting the 10.1 consensus.

However, all the positive vibes might have been offset by the 0.8% decline in German industrial production in September which disappointed the market’s 0.6% growth rate for the month. Tsk, tsk…

You may wanna keep an ear out for talks about the Portuguese bond auction tomorrow as the event will most probably dictate the euro’s fate on the charts given the absence of market-moving reports.

Today we only have third-tier economic data on tap. At 7:00 am GMT we have final reading of Germany’s CPI for October which is anticipated to come in at 0.1%. Then at 7:45 am GMT, we’ll see how France is doing with its trade balance report. Analysts are eyeing a narrower trade deficit in September at 4.0 billion EUR than the 4.93 billion EUR it posted in August.

The French government’s budget balance for September will also be announced along with that. It printed a 122.1 billion budget deficit in August so a smaller deficit would probably be bullish for the euro.

Good luck and happy trading y’all!

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…And the bleeding just won’t stop! For the third straight day, the charts were riddled with red candlesticks, marking the euro’s continued slide. It was pretty much downhill from the very get go for EUR/USD as it didn’t rise much higher than it’s opening price of 1.3917. Action for the euro bears picked up even more at the start of the New York session as they pushed the pair straight down to finish at 1.3778.

Greece’s successful bond auction yesterday was the only silver lining. But even that couldn’t stop the euro selloff.

Concern over Ireland’s and Portugal’s enormous budget deficits seems to be building up, as reflected be record-high yield spreads. Investors are becoming more and more worried that these two euro zone members may default on their debts, causing them to reduce their euro holdings.

In other news, analysts were right on the money when they predicted that the German final CPI would show a 0.1% increase once again in October.

Also noteworthy are the reports that France generated. They reported that the government’s budget deficit grew from 122.1 billion EUR to 124.2 billion EUR. Similarly, their trade balance deficit disappointed as it shrank from 4.93 billion EUR to 4.68 billion EUR, unable to meet forecasts for a 4.00 billion EUR deficit.

Later today, we will put investor confidence to the test as Portugal is set to auction off up to 1.25 billion EUR in bonds. A successful sale marked by a healthy demand may help restore confidence in the euro. But on the other hand, a failed auction may spell the beginning of the end for the currency.

Aside from that, we’ve got a couple more to watch out for today.

First, we have the French industrial production report due at 2:45 am GMT. According to forecasts, expect to see September follow up October flat growth with a 0.2% uptick.

Then at 1:00 pm GMT, the main man himself,ECB President Trichet, will speak about “How to Overcome the Crisis.” As usual, be sure to listen in closely as he may have a thing or two to say about recent developments in the euro zone.

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Action on EUR/USD was as intense as the Heat vs. Jazz game yesterday! After opening at 1.3778, the pair hustled to an intraday high of 1.3826 where it met some resistance and tumbled to a low of 1.3671. The euro was then able to gain enough momentum during the North American session to close Wednesday with a 1-pip gain at 1.3779. Whoa!

So what’s choked the euro early on the day? If you guessed debt woes, then give yourself a pat on the back.

  Despite government officials and a few hotshots from the European Commission saying that Ireland doesn’t need to be bailed out, rising bond yields have gotten investors at the edge of their seats. Word on the street is that they are worried that Ireland could default on its debt and cause investors a heartbreak similar to what LeBron James gave the Cavaliers fans when he left the team.

  Good thing the Portuguese bond auction saw strong demand and somehow eased concerns about Europe’s debt crisis. The government raised 1.242 billion EUR which was just below the upper end of the 750 million EUR to 1.25 billion euro target range. And to make things even better, yields were lower than yields in the secondary market.

  On the economic front, all reports disappointed market expectations save for the French [CPI](http://www.babypips.com/forexpedia/CPI) for October which hit the target at 0.1%, and erased the 0.1% decline in consumer prices in the previous month. However, [inflation](http://www.babypips.com/forexpedia/Inflation) wasn’t struttin’ its swagger as much in Germany as it did in France during the month. The wholesale price index fell by 0.3% following September’s 1.0% reading, also falling short of the market’s 0.7% consensus. 

  But don’t worry, [ECB](http://www.babypips.com/forexpedia/ECB) member Noyer remarked that neither inflation nor [deflation](http://www.babypips.com/forexpedia/Deflation) pose risks to the region.

  Some naysayers are wondering if they should worry about France though. Yesterday we saw that French manufacturing production contracted by 0.1% in October while [industrial production](http://www.babypips.com/forexpedia/French_Industrial_Production) only rose by a puny 0.1% in September. Analysts had predicted a 0.6% uptick in manufacturing activity and 0.5% growth in the overall industrial sector. 

  You may want to tune in to the ECB monthly bulletin for October due later at 9:00 am GMT to get dibs on the [European Union’s](http://www.babypips.com/school/euro-zone.html) view of the French economy and the rest of the region. Also be on your toes for talks about sovereign debt worries as this may continue to dictate [market sentiment](http://www.babypips.com/school/what-is-market-sentiment.html)and the euro’s action on the charts. Good luck!
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Just like Gilbert Arenas, traders were scared of getting booed by buying the euro amid talks of sovereign debt. As a consequence, Fiber ended the day 120 pips lower against the dollar at 1.3759. Against the pound, it fell to its 2-month low at .8456 before closing at .8477 with a 72-pip loss.

The spotlight remained focused on Ireland as worries over it needing a Greek-style bailout intensified. In fact, the continued rise in Irish bond yields spooked traders enough that not even upward revisions on the ECB’s GDP forecasts were able to turn the euro around.

Yesterday we saw that the ECB monthly bulletin for October reflected the bank’s optimistic outlook for the region. The ECB hotshots are now expecting the economy to expand by 1.6% in 2010. Previously, they only saw GDP to come in at 1.1%. Inflation is also anticipated to show a 1.5% uptick by the end of the year, higher than when they last estimated it at 1.4%.

However, GDP for the third quarter is projected to have been lower at 0.5%, following the 1.0% growth we saw during the second quarter. The preliminary report will be announced later at 10:00 am GMT along with the industrial production report for September which is predicted to show a modest 0.2% uptick.

Before the flash GDP report, we’ll see the French GDP first at 6:30 am GMT. Analysts are bracing to see that growth slowed in the country with the consensus down to 0.5% from its previous reading at 0.7%.

Germany will then follow with its own GDP figure at 7:00 am GMT. Its 0.8% forecast is lower than the 2.2% growth rate it printed during the second quarter primarily because of the slowdown in retail sales in September.

As Forex Gump pointed out in his weekend blog, these reports are could possibly make you win or lose big. So make sure you don’t miss ‘em!

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Bam! What a week for the euro! With growing concerns regarding an Irish bailout, the euro tumbled across the board. EUR/USD fell by just over 300 pips, while EUR/GBP dipped 200 pips from its highest point during the week. Is the euro in for more weakness?

More and more people are readying themselves for the possibility that Ireland may ask for bailout. Word on the street is that our boys from Dublin will need about 80 billion EUR in the event that they do ask for a “Get Me Out of Fiscal Irresponsibility Jail” card.

Why is this significant? Remember, just about this time last year, Greece’s debt problems were surfacing. After topping out around 1.5000 late last year, EUR/USD tumbled all the way down to 1.1900 by mid 2010. Am I saying this will happen again? No, but I’m just saying that debt fears may spark another bearish euro run.

In other news, GDP figures came in slightly weaker than anticipated. While it wasn’t a huge disappointment that German and French GDP came in at 0.7% and 0.4% - just off expectations of 0.8% and 0.4%, respectively – the previous quarter’s data were revised up to 2.3% and 0.7%. This means that over the past quarter, production has dropped off significantly.

Overall, the euro zone grew by 0.4%, which wasn’t even half the 2nd quarter’s growth of 1.0%.

This is probably due to the fact that many government’s within the euro zone are working hard to become more “fiscally responsible” a.k.a “Let’s get our finances in order before we start spending so much again”. With government’s kicking in more austerity measures, I wonder if we’ll continue to see dismal growth over the next few quarters.

Looking at the economic calendar, it seems that there aren’t much biggies coming out this week.

For today, all we’ve got is the euro zone trade balance data will be available at 10:00 am GMT. Expectations are that imports outpaced exports by 800 million EUR during the month of September. This report shouldn’t have too much bearing on sentiment towards the euro though, as it is regarded as a low impact event.

As for the rest of the week, the only major economic report you should keep an eye on is the German Zew Economic Sentiment report, due for release tomorrow at 10:00 am GMT. This report measures how investors, analysts, and other super smart people view how healthy the economy is.

Aside from that, no other red flags coming out, but that doesn’t mean we’ll be in for a quiet week in the forex market. Keep an eye out for any news regarding an Irish bailout. Debt concerns are no laughing matter and if news pops up that Ireland will ask for some bailout money, it may just send the euro in a tailspin.

365

And EUR/USD posts new monthly lows again! After retracing some of its losses last Friday, EUR/USD found itself on the chopping block again. From From it’s Asian session opening price of 1.3704, the pair was furiously sold-off throughout the day to eventually close the U.S. trading session at 1.3569.

No important news released yesterday from euro zone, so most of the focus remained on Ireland’s ugly debt situation. Apparently, other euro zone nations are putting a lot of on the Irish government to ask for a bailout from the European Commission, but the European Commission insists that Ireland is A-ok and has the necessary funds available to cover its spending needs. Who’s right and who’s wrong? Ah, only time can tell.

Euro selling also intensified when retail sales for October from the U.S. beat expectations by a large margin. The headline figure came at 1.2%, significantly higher than the forecast of 0.7%.

Now let’s move on to today… Let’s see what biggies we have on the economic cupboard…

At 6:00 pm GMT, we will see the ZEW economic sentiment. The ZEW economic sentiment is measures how optimistic or pessimistic investors, analysts, and other market experts are on the economy for the next 6-months. The consensus is a reading of 2, slightly higher than the previous month’s reading of 1.8. If the actual reading beats consensus, we could see EUR/USD come off its lows.

At the same time, we will also see the release of euro zone’s HICP, or euro zone’s harmonized index of consumer prices. Hah, fancy name but it’s actually just called the consumer price index or CPI in other countries. In any case, the market expects the report to show a 0.3% increase in prices month-on-month. Meanwhile, the core version of the report that excludes volatile items such as gas and energy in its computation is predicted to show a 1% rise.

366

EUR/USD hit a 7-week low at 1.3447 during the New York session after it reached an intraday high of 1.3656. At the end of the day, with the pair down by 80 pips at 1.3489, there was only one resounding tune in the forex market, “That’s what you get when risk aversion kicks in, euro-oh-oooh-oh!”

Talks about Ireland needing a bail out continued to rock headlines and making things even worse was Austria undermining Greece’s efforts to straighten its balance sheet. Basically, Austrian Finance Minister Josef Proell said that Greece may not be eligible for further aid for failing to meet its public deficit targets.

Sheesh! Sovereign debt made so much noise during yesterday’s trading that not even positive economic reports could turn the euro around. Tsk, tsk…

Let’s take a look at them, shall we?

The harmonized CPI report for October came in line with expectations when it showed that prices in the euro zone were 1.9% higher than they were a year before. Excluding volatile items, consumer prices rose by 1.1% on an annual basis and beat what analysts were bracing for by 0.1%.

Then there was the ZEW Economic Sentiment report for November which came in six times better than the consensus forecast at 13.8!

The German version of the report showed that investor confidence for current conditions is at its highest since July 2007 at 81.5, overshooting the projected 75.0 reading. Digging a little deeper we see that economic hotshots are not only optimistic about the present situation of the economy with the expectations component rising for the first time in 7 months!

Although these stellar figures weren’t enough to shield the euro from the dollar’s strength, I have a feeling that they might have cushioned the currency’s fall against its other counterparts.

We don’t have anything on tap for it today though. Uh oh… If debt issues continue to weigh down market sentiment, we may just see Fiber get sold-off across the board!

So make sure you keep tabs on what’s up with Ireland before you bet your pips. Kapish?

367

That’s the ticket! The euro got a bit of relief from this week’s selling frenzy when it inched higher against its major counterparts yesterday despite the lack of economic reports from the region. EUR/USD climbed by 25 pips at 1.3514, while EUR/JPY rose by 24 pips at 112.61.

The slight gains didn’t exactly spark fireworks yesterday, but what can you expect when debt concerns in the region continue to hound the markets? For one, Portugal’s borrowing costs increased yesterday when it had to pay an average yield of 4.813% for its 12-month bills, up from its 3.26% auction figure last November 3.

Concerns on Ireland’s ability to pay its debts also continue to ward off the currency bulls. Word around the forexville is that while Ireland’s Finance Minister Brian Lenihan said that the Irish economy might not need a bailout package from the EU and the IMF, it is open for talks regarding its banking system. That might be an improvement from a direct refusal for help, but until this subject is resolved, we might not see the euro significantly climb the charts anytime soon.

Maybe the region’s current account report today at 9:00 am GMT can encourage the bulls if September’s deficit prints lower than the expected 2.2 billion EUR figure. A lower deficit could signal more demand for the region’s goods.

Then at 1:30 pm GMT European Central Bank President Jean Claude Trichet will make headlines in Frankfurt. Will he talk about the ECB’s next moves? Keep close tabs on this one!

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Strike two for the big guy! The euro gained on its major counterparts for the second day in a row yesterday when Ireland began to show willingness to accept financial help from the EU and the IMF. EUR/USD climbed by 113 pips at 1.3628, while EUR/JPY rose by a whopping 119 pips at 113.80!

Yesterday the current account report sank deeper in the deficit rut at 13.1 billion EUR, down from 6.9 billion EUR in August. Good thing the data didn’t rain on the currency bulls’ parade! Word around Pipsville is that Irish officials are more willing to ask for loans to help its banks than accept a bailout package for its sovereign. This might not be what the market geeks first thought, but it’s certainly an improvement from their previous I-can-do-it-alone stance!

Will the euro go for turkey against its pip-comrades today? The German producer price report is due today at 7:00 am GMT. Forex junkies see the data to remain its 0.3% growth rate, but a higher number could provide the euro more traction in the charts.

At 2:15 pm GMT European Central Bank President Trichet will take the spotlight in a European Banking Congress. Watch out for any fireworks on this one! I hear that he already said that the ECB won’t be making a habit of bailing out euro zone economies.

Stay sharp in the last trading day of the week, homies!

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The euro was struttin’ its dougie against the dollar above the t 1.3700 when China’s hike sent it tumbling to 1.3630. But it was all good coz EUR/USD still ended the day 58 pips higher at 1.3686. Hollah!

I know that some of y’all might be tempted to think that the euro’s third consecutive win against the dollar means that it’s already out of the woods. But don’t be a foo!

The market’s spotlight remains focused on Ireland as it negotiates for a financial package with the EU and IMF. As my homie Forex Gump wrote in his weekend blog, the more important question is whether it will be a loan or a bailout.

Economic gurus think that help from the EU and IMF could bring stability to the currency. So be sure to keep tabs on the Irish issue because from what I’ve heard, a deal could be made within the week! Take note that ECB President Jean-Claude Trichet could drop some hints about this when he speaks at the European Parliament at around 5:00 am GMT today.

Aside from that, also be on your toes for the economic reports we have on tap from the euro zone because Germany’s inflation report helped the currency rally during Friday’s trading. Its PPI figure for October came in as expected at 0.4%.

For today, we only have the European Commission’s consumer sentiment report for November at 3:00 pm GMT which is expected to show that confidence is still on the down low with the forecast steady at -11.0.
Then tomorrow we’re in for a treat with a handful of German and French data.

At 7:00 am GMT, Germany will release its final GDP calculation for the third quarter and no revision from its prior reading of 0.7% is expected. To be announced along with that is the GfK Consumer Sentiment report for November which is seen to post a 5.0 reading for the month.

Then it’s on to the French Manufacturing and Services PMIs for November at 7:58 am GMT. Analysts are anticipating both figures to come in at 55.0.

Germany will also release its own version of the reports at 8:28 am GMT. Service sector activity is seen to have been lower, with the consensus forecast at 55.8 following the previous month’s reading of 56.0. On the other hand, the manufacturing PMI is projected to print at 56.9.

To end tomorrow’s roster of economic data will be the PMIs for the entire region. At 8:58 am GMT, the Flash Manufacturing PMI is predicted to tap a 54.4 reading while the Flash Services PMI is eyed at 53.1. Lastly, the Flash Composite PMI is estimated at 53.6.

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Risk aversion was on like Donkey Kong! Only the consumer confidence report was released yesterday, but the euro fell hard against its major counterparts when markets reacted to Ireland’s bailout over the weekend. EUR/USD tumbled by 120 pips at 1.3624 after opening at 1.3744, 58 pips higher than Friday’s close. Meanwhile, EUR/JPY plummeted by 122 pips at 113.45.

Though details on Ireland’s bailout are limited, markets reacted positively to the idea that Ireland will have help restructuring its banking system. But markets soon turned its focus to Portugal and Spain, the next possible economies that might need bailouts. The possibility of more euro zone countries asking for bailouts spooked the currency bulls, so the bears pushed the euro significantly lower in the charts.

Today is a busy day for the euro region with a lot of economic reports on deck. The German consumer climate will be out at 7:00 am GMT, followed by the final German GDP figure for the third quarter. Then, at 8:00 am GMT, we’ll get hold of the German and French manufacturing and services PMIs. Meanwhile, we’ll see the PMI figures for the whole region at 9:00 am GMT. Expectations are mixed for the PMIs for November, but higher numbers might help restore confidence in the euro.

Good luck in your trades!