Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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And the day belonged to the worrywarts! Despite clocking in better than expected PMI reports yesterday, the euro lost ground against its major counterparts on risk aversion. EUR/USD slid 252 pips from its open price at 1.3372, while EUR/JPY dropped by 224 pips at 111.21.

Yesterday’s French, German, and the euro zone’s manufacturing and services PMIs all showed growth in the month of November, which supported the uptick in consumer and investor confidence we saw a few weeks ago. Germany’s manufacturing PMI rose to 58.9 from October’s 56.6 figure. Meanwhile, France published an increase to 57.5 from 55.2 for its manufacturing PMI, and a growth to 55.7 from 54.8 in the services sector.

Too bad the market geeks were too busy playing eenie-meenie-miney-mo between Spain and Portugal to pay attention to these improvements. The region’s debt contagion concerns continue to plague the markets after Ireland’s bailout, and the possibility of another euro economy applying for a bailout motivated the currency bears to feast on the euro. Will we soon see the euro hit its September lows? Yikes!

Maybe the reports on deck today can provide any game-changers. The German Ifo business climate will be out at 9:00 am GMT. Though the data is expected to remain at its 107.6 index figure in October, a higher number might indicate that the region’s largest economy hasn’t run out of steam.

At 10:00 am GMT we’ll get hold of the industrial new orders data. A decrease of 2.5% is seen for the month of September, but keep your eyes open for any surprises! The last act for the day will be performed by Deutsche Bundesbank President Axel Weber when he gives a speech at the German embassy in Paris. Don’t even think of missing this one!

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While the euro lost out yet again, at least it wasn’t as bad as the previous two days. EUR/USD fell just 43 pips for the day to end at 1.3328. Hey, at least it wasn’t a 250 pip drop like on Tuesday! Looks like the euro bulls will at least have something to be thankful for!

The euro has been experiencing weakness as of late, primarily due to debt concerns. Yesterday, S&P downgraded Irish debt, and the euro took some hits. It could have been worse, but since the Irish took a bailout this past weekend, it was somewhat priced into the markets already.

There was one bit of good news however. The German Ifo business climate report came in better than anticipated, printing a reading of 109.3. It was expected to have a score of just 107.5. This marked the 6th consecutive month that the report came in to beat consensus. This highlights how the German economy has been chugging along like a well-oiled economic machine.

The problem of course, is that most market participants aren’t focusing on this – they are focused on Germany’s debt ridden siblings, Portugal and Spain! Many are worried that after Ireland accept a bailout, Portugal and Spain will follow suit. Watch out for any news regarding these countries, as it could spark yet another euro sell off.

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With U.S. traders off on holiday, it was no surprise to see EUR/USD trade within a range of about 100 pips. After dipping lower to start the London session, the pair bounced back up and finished the trading day at 1.3388, 60 pips above its opening price.

Ireland did release its four year austerity plan, which will be formally introduced to Parliament next December 7. The Irish plan to hold back spending in order to cut the deficit to just 3% of GDP by 2014. Will Parliament be happy with this plan? We shall have to wait and see!

Looking ahead, no biggies on the economic calendar, as the only report worth taking note of is the German CPI report, which is scheduled for release anytime today. Inflation is expected to remain subdued and show no growth in prices over the past month. Even if this report comes in better than expected, I highly doubt that it will be the main driver of price movement during the London session.

Now, just because some traders may still be on holiday doesn’t mean we won’t be in for some wild moves today. Take note that the past two years, we’ve seen a spike in volatility on Black Friday. Seeing as how EUR/USD has dropped a good 400 pips since the start of the week, could the down move be overdone and shall we see a retracement?

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While the U.S. retailers were aiming for black balance sheets last Friday, market playas were busy pushing the euro in the red. Risk aversion due to the European debt crisis and the tiff in Korea continued to drag the euro down, with EUR/USD falling by 107 pips at 1.3248. Meanwhile EUR/JPY dropped to an intraday low of 110.56 before leveling off with a 22-pip loss at 111.42.

As if the threats of Portugal and Spain asking for bailouts weren’t enough to spook the markets, credit ratings agency S&P recently downgraded its ratings for Anglo Irish Bank (AIB), one of Ireland’s largest banks, six notches from BBB to B. That’s junk status, yo! My brothas in Pipsville told me that if the bank continues to boil in hot water over the next few weeks, it might ask its bond holders to share the weight by writing down the value of their assets. Ack!

The region’s mixed economic data also didn’t do much for the euro. Germany’s CPI in November remained intact at 0.1%, but consumer spending in France slowed down by 0.7% in October after rising by 1.6% in September.

No report is scheduled for release today, but watch out for other potential game-changers this week. Tomorrow at 10:00 am GMT we’ll see the region’s unemployment rate and CPI flash estimate after Germany’s employment change is released at 8:55 am GMT. Analysts expect the unemployed workers in Germany to drop by 20,000 while no change is anticipated for the region’s 10.1% unemployment rate and 1.9% inflation rate.

On Wednesday at 1:30 pm GMT we’ll also hear from European Central Bank as it gives a press conference right after it announces its interest rate decision. While many expect the cash rate to remain at 1.00%, market geeks are gonna be watching Trichet’s speech like it’s the trailer for the Harry Potter 7 part 2 to get clues on the bank’s outlook for the region.

Don’t even think of missing out on these reports!

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No surprises here, bub! With no big reports released from the euro zone, the European debt crisis continued to direct the euro and sent it lower down the charts. EUR/USD recorded a solid 159-pip slide to end at 1.3123 while EUR/JPY slid 93 pips to close at 110.56.

“Fiscal problems” still seems to be the name of the game up in the euro zone. Even as the Spanish prime minister guaranteed that there’s “absolutely no” chance that Spain will seek a bailout and Portugal approved large spending cuts, investors remain very worried and cautious. It seems we’ll have to wait for the debt-riddled countries to start taking concrete action towards fixing their debt problems before we see a restoration of confidence in the region and in the euro.

No lack of economic events today!

The action starts at 8:55 am GMT with the German unemployment data. Unemployment change data due to show a decrease of 20,000 in October following a decline of 3,000. In turn, this is expected to translate to an unchanged unemployment rate of 7.5%.

Then at 10:00 am GMT, we take a look at the euro zone flash CPI data which is anticipated to print a year-on-year rise in prices of 1.9% in November, just as it did last month.

At the same time, we take a look at the unemployment rate of the euro zone as a whole, which is expected to remain at 10.1%. As usual, be on the lookout for better-than-expected figures that may provide the euro with a bit of relief from the recent selloff.

Last but not least, ECB President Jean-Claude Trichet is due to speak before the European Parliament Committee on Economic and Monetary Affairs. What Trichet has to say usually holds a lot of weight in the forex world because as head of the ECB, he has more influence on the euro than any other individual. As such, be sure to stay sharp for clues regarding future monetary policy!

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…And the sell-off continues! It was smooth sailing for euro bears yesterday as a possible credit rating downgrade for Portugal took EUR/USD further down. It began its southbound course early in the day and never looked back. EUR/USD eventually locked in a 143-pip loss while EUR/JPY slid by 190 pips.

The euro took another heavy blow to the gut yesterday after Standard and Poor’s (S&P) threatened to downgrade Portugal’s credit rating. S&P said that the risk of Portugal bailing out may require a downward revision of its current A- rating. Of course, this doesn’t help calm fears in the euro zone as investors are already up to their necks in worries.

As for economic data, yesterday’s releases failed to provide any support for the euro.

German unemployment declined by just 9,000 in October, less than half what was expected. Luckily, this had no effect on the German unemployment rate, which held steady at 7.5% and matched the previous month’s rate. Likewise, the unemployment rate of the euro zone as a whole didn’t change and stayed at 10.1% as expected.

Analysts also guessed right when they predicted that the flash CPI report would print a 1.9% year-on-year increase in prices in November, just as it did in October. Luckily, inflation has been pretty stable in the region lately. But at this point, the central bank really doesn’t need another problem to deal with.

In other news, ECB President Jean-Claude Trichet spoke up yesterday and basically said, “You guys gotta have faith!” Trichet believes that investors are underestimating policy makers’ ability and dedication to achieve financial stability in the region. It certainly sounds like the ECB is willing to do all it can to survive the crisis. In fact, Trichet even hinted at more bond purchases.

We’ve got a couple of reports to look out for today.

First is the German retail sales report due at 7:00 am GMT. September saw a 1.7% decline in sales, but analysts say we’re likely to see a 1.2% uptick for the month of October. With winter underway and the holidays just around the corner, might we see a stronger-than-expected increase?

Then at 9:00 am GMT, we take a look at the final manufacturing PMI of the euro zone, which is slated to show a reading of 55.5 once again. Of course, an upside surprise could mean that manufacturers have been getting busy lately and may provide a bit of relief for the euro.

In any case, stay safe out there, kiddos!

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CHAAAAAAARGGE!!! The euro bulls finally woke up from their slumber yesterday and boosted the euro like there was no tomorrow when positive economic reports popped up in the markets. EUR/USD jumped 157 pips to its 1.3137 closing price, while EUR/JPY soared by 194 pips.

Aside from China’s upside surprise in manufacturing PMI, the euro zone’s positive economic data also contributed to the rally of risk appetite. Germany’s retail sales hit its 3-month high at 2.3% in October, balancing out two months of decline for the data.

It also didn’t hurt the currency that the European Central Bank shopped for European bonds yesterday. The ECB’s purchases of Portuguese and Spanish bonds helped narrow down the Portuguese/German 10-year yield spread to 423 basis points, its lowest this week. The ECB did this to calm the markets by showing that Portugese and Spanish are safe enough for them to put their money in. Fist bump for the ECB!

Stay glued to the tube today because the ECB will hold a press conference explaining its interest rate decision at 1:30 pm GMT. Market geeks are tripping all over themselves guessing the ECB’s plans, so any bombshells from the ECB might spike volatility in your charts!

If you can’t wait to trade the euro news before the ECB statement then you might want to watch for the producer price index report and the revised GDP data for the third quarter out at 10:00 am GMT. The PPI for October is expected to rise by 0.1% to 0.4%, while no revision is expected for the third quarter GDP.

Deutsche Bundebank President Axel Weber will be the last to hit the pip stage when he gives his speech in Frankfurt at 3:00 pm GMT. Will we get hints on the ECB’s plans from him? Don’t even think of missing this one!

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I hope you’re keeping count because that makes it two in a row, son! After rumors went around that the ECB was buying bonds, the markets went gaga for the euro. EUR/USD chalked up its second straight win against the dollar after declining sharply in the past couple of weeks. The result of yesterday’s trading: EUR/USD at 1.3224 with an 87-pip gain.

All eyes were on the euro yesterday as the ECB made its interest rate announcement and held its press conference. As expected, no changes were made to the 1.00% rates. But investors were really more interested in what the ECB had to say about the euro zone’s current situation.

Many were initially disappointed that ECB President Jean-Claude Trichet didn’t announce that the central bank would be increasing its bond purchases. But soon after, investors unleashed their inner gossip girls, and talks about the ECB buying Portuguese and Irish debt began to circulate. These rumors spread like wildfire, and naturally, the euro began to rally!

In Trichet’s defense, he did offer a few soothing words himself. He said that the euro has provided greater price stability for Germany than the Deutsche mark ever did. In other words, he basically said that there’s no chance that we’ll see the end of the euro and a return to old currencies.

As for economic data, the revised GDP figures for Q3 came in as expected at 0.4%, just as it had in the past. Score one for the forecasters!

Now, just because we got a lot of info yesterday doesn’t mean you can take it easy today. At 7:30 am GMT, Trichet is scheduled to speak to the European American Press Club. I, for one, am interested to see if he’ll follow up yesterday’s press conference with more euro-supportive words.

We also have economic data on deck today.

First, we have the final services PMI coming out at 8:58 am GMT. This report is expected to print a reading of 55.2, just as it did before.

Then at 10:00 am GMT, retail sales data will be available. Forecasts are for a 0.2% uptick in October to reverse the previous month’s 0.2% downtick. As usual, be on the lookout for better-than-expected results that may give the euro another boost!

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With concerns in the U.S. taking center stage again, the euro rallied as if the markets had forgotten all about the European debt crisis! It scrambled almost 200 pips higher against the dollar, but was held to a draw against the yen.

Last Friday was a perfect example of how the markets can change in the blink of an eye. It wasn’t so long ago that investors were fixated on Europe’s debt problems. They were selling off the euro faster than hotcakes! But thanks to terribly disappointing U.S. nonfarm payrollsdata, all that is in the past.

The strong rise we saw in EUR/USD last Friday wasn’t just because of dollar weakness though. The rally had fundamental backing as well. It was revealed that euro zone’s final services PMI gave a reading of 55.4, better than forecasts which matched the previous record of 55.2.

Adding to that, retail sales bounced from the 0.1% decline it recorded in September to record a solid 0.5% growth in October, more than double what was predicted.

In the week ahead, look for concerns over the euro zone’s debt situation to rise again since it looks like we won’t have much data to work with. Only tier 2 events for us this week!

Later at 9:30 am GMT, Sentix will publish its investor confidence report, which most expect to print a softer figure of 13.2, down from 14.0 in October.

Tomorrow at 11:00 am GMT, German factory orders data is on tap. Let’s see if October marked an improvement from the 0.4% decline we saw in September. Most are convinced we’ll see an uptick. The question is, by how much? Analysts believe a 1.8% rise is likely, so keep an eye on that figure.

Also tomorrow, the European council is set to hold its ECOFIN meetings, where finance ministers of European Union member states will chat about all sorts of financial issues. Oh boy, I’m sure those guys have tons to discuss. Talks of further bond purchases, support mechanisms, and government finances could be on the agenda, so be sure to stay on your toes!

Then on Wednesday, we take a look at German industrial production in October. Apparently, analysts are feeling a bit more optimistic and are predicting a 0.6% uptick after seeing a 0.8% fall in production in the previous month. As the region’s largest economy, it’s important for the euro zone that Germany’s production stays strong.

We cap off the week with French industrial production data, which, if forecasts are correct, will print a 0.4% increase following the previous month’s 0.1% rise.

Now, let me remind you that the big picture still hasn’t changed up in the euro zone. Many euro zone nations are still neck-deep in debt woes, so be on the lookout for worse-than-expected figures that may trigger another euro selloff!

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Ha! Just when it seemed everybody was starting to forget about the European sovereign debt crisis, news that EU member Hungary may need a bailout as well hit the airwaves to drive the euro lower! EUR/USD dropped 75 pips from its opening price, while EUR/JPY closed at 110.05, 62 pips lower for the day.

While Hungary is not part of the euro zone, it is part of the EU, so if they ever hit rock bottom like Greece or Ireland, they would be eligible to dip their hands and get some money from the EFSF bailout fund. Meanwhile, Moody’s has downgraded Hungary’s debt, as they see Hungary’s strategy of raising taxes to fund their deficit (as opposed to implementing strict austerity measures) as an ill-fitted plan.

In any case, it’s pretty clear that European debt concerns are still weighing heavily on the markets, so this will be something that I’m gonna monitor like Huck watches Glee episodes.

Looking ahead, the ECOFIN meetings will begin today, and this could be a major market mover. Some people are pushing for the EU to expand the EFSF bailout plan because it’s becoming more and more likely that it won’t be enough. I’ll keep you guys posted on any developments on this meeting.

Lastly, Ireland will finally be releasing its budget plan. A couple weeks back, the Irish government had hoped that they could hold off on accepting any bailout funds, hoping that once everybody saw their budget plan, it would calm the markets. However, a lot has changed since then. The Irish government, which unlike Hungary, will be implementing a strict austerity diet, needs to have their budget approved in order to avail of any bailout funds.

To recap, Hungary got downgraded by Moody’s and has now joined Spain and Portugal at the bailout counter. Meanwhile, we could be in for momentous couple of days, as we’ve got the ECOFIN meeting and Greece’s budget plans scheduled for release.

As I always say, sentiment can change on a dime, so watch out my forex friends!

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Boy how things change quickly eh? It looked like the euro was headed for some nice gains early in yesterday’s London session, but lost pace just as New Yorkers clocked into Wall Street. After testing the 1.3400 handle, EUR/USD tumbled down the charts to close at 1.3274, closing 39 pips lower for the day.

Unlike other higher yielding currencies, the euro could not press its advantage against the dollar. Apparently, the Irish budget vote weighed heavily on the mind of traders. Yes, the budget was passed – by the slimmest of margins, mind you – but we’re just getting started. Parliament will still have to vote on the individual parts of the budget, so what we see now may not exactly be the budget in mind later on. It’ll be interesting to see if any specific bill gets shot down later on.

Meanwhile, German factory orders came in slightly disappointing, as they printed an increase in orders of 1.6% during the month of October. This continued a trend of uneven growth over the past 6 months.

Looking ahead, we’ve got German industrial production figures on deck today at 11:00 am GMT. Seeing as how yesterday’s factory orders came in to the weak side, could we see the same in today’s report?

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The euro took traders on another rollercoaster ride yesterday as it dipped and climbed throughout the day. Its movements were as mixed as its economic releases, but in the end, it finished slightly lower against the dollar. EUR/USD had dipped to a low of 1.3180 before it capped the day off 9 pips lower at 1.3263.

The trade balance figures printed by the two largest euro zone economies were on opposite ends of the spectrum yesterday.

On one hand, the German trade balance posted a worse-than-expected surplus of 14.2 billion EUR, falling short of the anticipated 15.1 billion EUR. On the other hand, France’s results were a bit more uplifting as it posted a slimmer trade deficit of 3.43 billion EUR, beating the expected 4.2 billion EUR deficit.

Unfortunately, between the two, it looks like investors put more weight on Germany’s negative results. After all, Germany is the largest economy in the region. More importantly, its exports recorded a surprising drop, which is said to have been caused by weak euro zone demand.

Germany’s industrial production report was able to counter the negative sentiment a bit when it posted positive results for October. A modest 1.0% uptick was expected to follow the 0.8% decline in September, but instead, October delivered a surprising 2.9% rise.

A big part of the increase is said to have come from a heavy demand for investment goods. Since investment goods are usually long-term-oriented, this makes me inclined to think that businesses are feeling more confident about their future financial positions.

More reports coming our way today!

At 7:00 am GMT, Germany’s final CPI will hit stands. November is expected to show the same 0.1% rise that October did.

Then at 9:00 am GMT, the ECB monthly bulletin will come out. The report contains the stats that the ECB analyzed when they made their last rate announcement. Not only does it give us a better understanding of the central bank’s position, but it also provides details about the current state of the economy that you can’t afford to miss!

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Too bad the euro couldn’t take the heat like LeBron. Ha! With EUR/USD 22 pips lower at 1.3242 at the end of yesterday’s trading, the shared currency just posted its fourth straight loss!

News that Fitch downgraded Ireland’s credit rating from A+ to BBB+ was a major pain in the euro’s butt. Grrr! And the credit rating agency wasn’t just looking to ruffle a few feathers. It cited that the three-notch downgrade “reflects the additional fiscal costs of restructuring and supporting the banking system.”

Now investors are worried that S&P and Moody’s may soon follow with their own credit downgrades! With this, there was very little that yesterday’s roster of economic reports could do to push the euro up.

The ECB Bulletin showed that there isn’t a tinge of worry in the central bank in regard to inflation, mentioning that interest rates are appropriate for the current economic environment. It also suggested optimism among ECB President Trichet and his homies saying that euro zone’s economic growth will continue while acknowledging the risks of sovereign debt.

Germany’s inflation data didn’t help the shared currency either. The country’s final CPI report for November showed no revision from its initial reading as it still printed a 0.1% uptick.

I wonder if today’s data will be able to provide the euro some support. Let’s take a look at them, shall we?

At 7:00 am GMT, the German Wholesale price index is anticipated to show that prices of goods sold by wholesalers increased by 0.5% in November.

Then at 7:45 am GMT, the spotlight will turn to France as data on industrial and manufacturing activity for October will be released. Analysts are keeping their fingers crossed for the manufacturing production report to reveal a 0.4% figure. On the other hand, industrial production is seen at 0.3%.

Aside from that, make sure you keep an ear out for updates about Europe’s sovereign crisis as this will probably dictate the euro’s direction on the charts. Good luck!

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Unlike Mick Jagger, the euro didn’t have any swagger on the charts last week. Boo! No thanks to disappointing economic reports, it posted its fifth consecutive loss against the dollar on Friday, with EUR/USD closing 14 pips lower at 1.3228.

The French economy failed to boost the euro’s ego when its industrial production and manufacturing production reports for October came in worse than expected. During the month, industrial and manufacturing activity declined by 0.8%, disappointing their forecasts which were for an increase of 0.3% and 0.4% respectively.

ECB President Trichet’s words also failed to get the euro struttin’ when he said that the bank’s monetary policy is appropriate given the region’s current economic situation. He hinted that tightening isn’t on the bank’s agenda, saying that inflation doesn’t worry the ECB.

His remarks could have offset the good vibes that might have come with Germany’s wholesale price report for November. It was reported last Friday that prices of goods sold by wholesalers increased by 0.7% during the month, erasing the 0.3% decline we saw in October. Tsk, tsk…

See if the euro will be able to rally today with the French current account figures for October on tap at 7:45 am GMT.

If we see the report sport a deficit narrower than the -4.4 billion EUR reading we saw in September, the euro may be able to pare some of its losses against the dollar. If not, then maybe tomorrow’s economic lineup comprised of inflation data, ZEW economic surveys, and industrial reports will do the trick!

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And that’s how you bounce back! After five days of crawling lower down the charts, the euro struck back with a vengeance and climbed like there was no tomorrow. Aided by improved risk appetite, EUR/USD ended the day 180 pips higher at 1.3391.

One of the contributors to the euro’s rebound was the better-than-expected French current account. It was revealed that its deficit had shrunk from 4.4 billion EUR to just 2.5 billion EUR. Not bad for a month, don’t you think?

Also, investors seem very optimistic for the euro this week as several confidence-boosting events are set to take place in the euro zone. First, Ireland will be putting its EU/IMF bailout package to another vote this week, and it’s widely expected to pass again.

Secondly, Spain and Portugal, two debt-troubled nations, are scheduled to hold bond auctions this week. Their auctions have been successful in the past, and so most are anticipating similar results. But should the auction fail to meet expectations, it could mean new lows for the euro.

Today, the spotlight is on the ZEW economic sentiment report which is expected to soften its reading from 13.8 to 10.5 for December. Germany will also be publishing its own version of this report, which is forecasted to print a rise from 1.8 to 3.9.

Industrial production figures for the month of October are also due today. After posting a sad 0.8% drop in September, production is predicted to have increased by 1.3%. Of course, a stronger-than-expected growth could result in a euro bull run, so it’s best to stay alert when this report comes out.

Catch all these releases at 10:00 am GMT!

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Uh-oh, is euro in trouble? After it wowed the market during Monday’s trading, EUR/USD dropped like it was hot yesterday from an intraday high of 1.3499 to its closing price of 1.3380. Ouch! What’s the deal yo?

A few market junkies think that the shared currency got lucky with its 12 pip-loss considering the downgrade that the S & P hollered. Yesterday, the credit rating agency revised its outlook on the Belgian economy from stable to negative, citing the country’s messy fiscal finances and political uncertainty as the main reasons for the move. Tsk, tsk…

Making it harder for the euro to rake in pips were the disappointing economic data that we saw. The industrial production report for October erased the decline it posted in September when it increased by 0.7% during the month, but fell short of the 1.3% increase that the market was eyeing.

Then there was the ZEW survey which showed that investor confidence on the euro zone’s current economic conditions deteriorated to -4.6 in December following November’s -1.0 reading. The German version of the report also failed to wow markets with the index coming in at 82.6 and missing the 84.5 forecast. Then again, we also have to acknowledge that it is at its highest level since July 2007.

On the other hand, economic hotshots see that economic conditions will improve despite the sovereign crisis with the expectations component of the ZEW report for Germany printing higher at 4.3 than the 3.9 forecast and November’s 1.8 reading. the expectations component for the overall region also printed a stellar figure of 15.5 following its previous reading of 13.8 and overshooting the 10.5 consensus.

This optimism for Europe’s economy might have kept the currency from plummeting but I wonder if it will be enough for today’s trading given that our economic calendar is blank for reports from the euro zone.

Oh, make sure you also keep an ear out Ireland’s meeting with the EU and IMF. From what I’ve heard, they’re going to talk about the rescue package today.

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EUR/USD opened at what would be its intraday high at 1.3380 and fell down to its closing price of 1.3220 faster than you can say, “I want an Android for Christmas!” Against the yen, the shared currency sustained a 61-pip loss with EUR/JPY ending the day at 111.41.

It seems like credit rating agencies are working extra hard to send the euro into the bear lair for Christmas. Yesterday I talked about S&P downgrading its outlook on the Belgian economy. Today, I’m telling you that Moody’s put Spain’s Aa1 credit rating on review.

A few market junkies say that although a Spanish downgrade wouldn’t be that much of a surprise since that would only bring Moody’s rating at par with S&P’s levels, the eagerness of these agencies are giving euro investors goosebumps.

Making yesterday’s trading even worse for the euro was Portugal’s bond auction. The government sold 500 million EUR worth of three-month Portuguese bonds with a yield of 3.4%, which was nearly twice what it paid for in November at 1.82%. Consequently, this implies that investors aren’t confident in buying Portuguese debt.

See how Spain will fare in its own bond auction today as it aims to raise 3 billion EUR of 10-year and 15-year bonds. Also, make sure you also keep tabs on the events we have on our economic calendar to help you with your euro trades.

We start at 8:00 am GMT with the French services and manufacturing PMIs for December. The indices are expected to come in at 55.4 and 57.8, respectively.

Germany will also release its own version of the reports at 8:30 am GMT. Its services PMI seen to clock in at 59.0 after printing at 59.2 in November, while its manufacturing PMI is anticipated to be a tad higher at 58.2 than its previous reading.

Then we’ll get dibs on how the two sectors are doing in the overall region at 9:00 am GMT. The consensus for euro zone’s services PMI is for a modest decrease to 55.2 from November’s 55.4 figure. Its manufacturing PMI is also seen to be lower at 55.2 compared to its previous 55.3 reading.

After all that, we’re in for a treat with the region’s inflation figures. The CPI report for November is anticipated to show that consumer prices were 1.9% higher than they were a year before. On a monthly basis, the headline figure is projected to print a 0.1% uptick. Lastly, the core reading which excludes volatile items is seen to print at 1.1% year-on-year.

Whew! It looks like we’re in for an action-packed day, huh? Make sure you’re ready to catch 'em pips!

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The euro struggled to stay afloat against the U.S. dollar and the yen yesterday. EUR/USD consolidated above the 1.3200 handle and closed at 1.3220 while EUR/JPY ended the day at 111.23.

Economic data from the euro zone was mixed as the German and French manufacturing PMIs came in better than expected while their services PMIs failed to meet expectations. Germany’s manufacturing PMI climbed from 58.1 to 60.9 while its services PMI dipped from 59.2 to 58.3. France’s manufacturing PMI rose from 55.3 to 56.8 while its services PMI slid from 55.4 to 53.7. Since these readings for December were still above the 50.0 mark, they indicate that the industries are still expanding.

Later on, euro zone’s CPI report showed that inflation was just as expected while core inflation was slightly weaker. The annual CPI held steady at 1.9% for November while core annual CPI landed at 1.1%.

What kept the euro from incurring more losses yesterday was the ECB’s announcement to increase their capital by 5 billion EUR to 10.76 billion EUR in order to make up for the additional volatility this holiday season. Plus, this assured market participants that the central bank would be able to weather a financial crisis in case they have to buy government bonds from heavily indebted euro zone nations.

For today, keep an eye out for the release of the German Ifo business climate index, which is expected to dip from 109.3 to 109.2. If it drops much lower, the euro could be in for another round of losses. The actual figure is due 9:00 am GMT.

Don’t forget that the EU economic summit is still ongoing and euro zone leaders are already talking about setting up an emergency fund for nations that need to reduce their deficits. If this plan pushes through, it could calm fears of debt contagion among other euro zone economies and possibly minimize the chances that the debt-ridden nations would need bailouts. Make sure you stay posted for any updates from the summit!

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After steadily climbing up the charts throughout the day, the euro tripped all over itself midway through the London session and proceeded to make new lows. EUR/USD fell a good 200 pips from its highs for the day to finally close at 1.3815, just below key support at 1.3200.

The spark for the huge drop? It was probably Moody’s (no, not that dude from Harry Potter) decision to downgrade Ireland’s debt by FIVE notches. 5!?! That’s more than what Cyclopip can count on one hand! Moody’s rating now stands at Baa1, and it wouldn’t surprise me if other ratings agencies join the party and hit Ireland with some downgrades of their own.

The downgrade is bad news for the Irish, as it makes financing their budget more expensive. The lower their rating is, the higher yields they will have to offer to investors in order to for them to take the risk of buying their bonds.

This news overshadowed the results of the German IFO business climate report, which printed a reading of 109.9. This marked its highest level all year, and beat the consensus of 109.2. This was another indication that Germany, the largest economy in the euro zone, is doing well. However, as long as concerns about sovereign debt from other parts of the euro zone weigh heavily on the markets, the euro will be hard pressed to make any rally of sorts.

As for the EU summit, no market moving decisions were made. The idea of combined euro bonds didn’t gain any footing, but EU leaders did decide upon some changes that could lead to a permanent crisis fund. What this basically is is a permanent bailout fund for the future, just in case it is needed.

Looking ahead, we may see more range like trading, as liquidity could die down as traders head off for the holidays.

Today, we’ve got the German PPI and euro zone current account data on deck at 7:00 am and 9:00 am GMT respectively. The PPI report is expected to show that German manufacturers paid 0.4% more for their goods in November than in October. This would indicate rising demand (and hence, inflation) from German manufacturers.

The current account is expected to print a deficit of 6.2 billion EUR during the month of October, which would be a nice reversal of the recent trend showing growing deficit figures. Take note that last month’s release showed a worse than expected deficit of 13.2 billion EUR for September. Watch out for a revision of this report.

On Tuesday, there’s the German GFK consumer climate report. It’s expected to come in at 5.7, slightly better than the previous month’s score of 5.5.

Aside from that, no other biggies on deck. Take note that EUR/USD has been one of the only major movers during Christmas week the past couple of years, so always, be on your toes and be alert! You never know when you’ll see that one big move that can make your year!

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“Mayday, mayday, Mission 1.3100 accomplished,” said the bears as EUR/USD dropped to its 2-week low at 1.3096 before ending yesterday’s trading at 1.3126.

So what’s the euro’s sob story for its 41-pip loss this time?

If you guessed that Ireland is behind it, give yourself a pat on the back. Yesterday, the ECB threw a fit over the Irish government’s proposed bill that seeks to give the Minister of Finance more power over the country’s banking sector. ECB President Jean Claude Trichet and his buds aren’t in favor of the bill because it would undermine the central bank’s collateral rights.

There was also the ECB’s move to establish a swap line with the BOE to provide Ireland with as much as 10 billion GBP in case there was a need for immediate liquidity. And lastly, the head of the euro zone finance ministers, Jean-Claude Juncker, also mentioned that they may need to increase the EFSF in January to support Ireland. Yikes!

Economic gurus are saying that these precautionary measures might have scared off investors as they imply that European leaders are expecting that the worst is yet to come for the euro zone.

The reports we saw yesterday didn’t keep the euro from sliding either. The German PPI report for November, which came in at 0.2%, missed the 0.3% forecast, and was lower than the 0.4% increase it printed in October.

Also falling short of expectations was Germany’s current account report for October that printed a wider deficit of 9.8 billion EUR than the 6.2 billion EUR that the market was bracing for. Then again, it wasn’t all the bad since September’s reading was revised up to -9.7 billion EUR from -13.1 billion EUR.

So aside from keeping an ear out for the Irish situation, you may also want to stay tuned to the German GfK Consumer Sentiment report for December on tap later at 7:00 am GMT to help you with your euro trades. Analysts have bet their two cents to see that consumers are more optimistic about their financial situation with the forecast up at 5.8 than its 5.5 reading in November.