Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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The euro ain’t Ryan Reynolds but it lit up the charts like the Green Lantern with all 'em bullish candlesticks during yesterday’s trading! EUR/USD ended the day 35 pips higher from its opening price at 1.4450 while EUR/JPY was up 65 pips at 116.26.

Aside from risk appetite that came from positive reports from China and the U.S., the euro was able to trade higher against its counterparts on optimism that Greece would avoid a credit default.

Now the pressure is on for European officials to come up with a sound plan for the debt-ridden country. Mark June 20 on your calendars as this is the deadline that finance ministers have set for reaching a deal.

But until then, be on your toes for the economic reports we have on tap from the euro zone.

Today we’ll have the French CPI for May at 5:30 am GMT which is seen to come in at 0.1%. Then at 9:00 am GMT, the industrial production report for May will be released and it is anticipated to come in at 0.3%.

Higher-than-expected figures will probably be bullish for the currency so watch out!

514

KABOOOOOM!!! The euro was blasted down the charts yesterday as violent civilian protests in Greece, spooked the euro bulls into selling the common currency like there’s no tomorrow. EUR/USD ended up plunging by a whopping 280 pips to 1.4171, while EUR/JPY also fell by 140 pips to 114.85.

Data from the euro zone yesterday revealed that industrial production ticked 0.2% higher in April from its stagnation in March, while France’s CPI also came in as expected at 0.1%.

Too bad for the euro, markets just can’t get over the Greek debt drama. If you had been glued to the tube yesterday, you would’ve seen how Greek civilians flooded the streets and protested against the government’s austerity measures. What’s more, Greece’s Prime Minister George Papandreou was all over the place trying to decide whether he’s resigning or reshuffling his cabinet. Guess he had his own “The Decision” to make, huh?

Of course, all the action reminded investors how far the Greek government and the euro zone officials are to finding a solution to Greece’s debt problems. The emergency meetings and strong debates don’t help much, so investors will probably continue to get skittish on any news about the region’s biggest headache right now.

Can the ECB give the euro some relief today? The ECB is expected to release its monthly bulletin today at 8:00 am GMT, and since ECB President Trichet used the not-so-magic words “strong vigilance” last week, we expect the report to be hawkish.

If you’re a news trader, you might also want to check out the region’s CPI and quarterly employment change figures at 9:00 am GMT.

515

First it was down… then it was up! The euro pulled off a perfect reversal against the dollar yesterday, turning up from its intraday low of 1.4073 to close 13 pips higher at 1.4184.

Euro zone CPI data didn’t exactly supportive of the euro yesterday. While the headline figure was in line with expectations at 2.7%, the core CPI fell short of the expected 1.6% and posted a mere 1.5% increase in prices.

But what really got the markets moving was the fact that more financial bigwigs started to speak up and express confidence that Greece will receive the funding it needs soon.

The IMF said it’ll continue to support Greece if it sees that it’s making the right corrections. The EU economics commissioner also helped ease concern after he said he’s confident that the euro zone government will finally reach an agreement on Greece’s rescue package this weekend. Finally, these guys are getting their acts together!

Up ahead, we only have trade balance data on tap. At 8:00 am GMT, Italy will post its trade balance, which is expected to show a deficit to the tune of 2.14 billion EUR.

An hour after that, the euro zone-wide trade balance report will be released. Look for the big EZ to post a deficit of 2.0 billion EUR, which is almost double that of the previous month.

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EUR/USD jumped by more than 120 pips from its 1.4184 open price last Friday, boosted by news that euro zone leaders could reach an agreement on how to solve Greece’s debt problems. EUR/CHF also enjoyed its share of gains as it climbed 90 pips up from its 1.2047 open price. And that’s how you make a comeback!

Last Friday, German Chancellor Angela Merkel expressed her willingness to cooperate and help find a solution for Greece’s debt problems. Not only that, she even called for the participation of international banks! This ushered in new hope that euro zone officials could work hand in hand in preventing Greece from defaulting and wreaking havoc across the entire euro zone banking system. Because of that, the euro was able to breathe a sigh of relief as confidence in European assets was somewhat restored.

Bear in mind, however, that euro zone officials still have a lot of work to do and this euro rally might not last. Unless they come up with a fix right away, credit rating agencies might be forced to dole out another set of downgrades, especially to those nations that are highly exposed to Greek debt.

Now let’s take a quick look at the economic calendar to see which reports could also affect the euro’s movement.

Today, Germany is set to report its PPI figure for May, which could show a 0.2% increase in input prices. Later on, the euro zone current account balance will be released. This could reveal that their deficit widened from 4.7 billion EUR to 4.8 billion EUR in April. Stay tuned for the actual releases starting 6:00 am GMT because stronger than expected figures could provide another boost for the euro.

Don’t forget that ECOFIN meetings are also set to take place today and if euro zone leaders report more progress in finding a solution for the Greek debt crisis, euro pairs could be in for more gains. Stay on your toes!

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I know y’all are keeping close tabs on the Greek debt situation but, so far, it seems hardly any progress has been made. That can explain why the EUR/USD ended the day only 32 pips up from its 1.4268 open price. Will the euro be able to make headway today?

Yesterday’s ECOFIN meetings haven’t exactly been as conclusive as everyone hoped. EU leaders still weren’t able to agree on a solution for Greece’s debt problems but they did decide to give the debt-ridden nation until early July to get its act together. For now, it seems that July 3 will be the day of reckoning for Greece since EU officials will meet again that day to decide whether Greece needs additional funds.

On the economic front, data released from the euro zone yesterday turned out to be weaker than expected. German PPI fell short of expectations and stayed flat in May instead of printing a 0.2% uptick. Euro zone’s current account deficit widened from 3.0 billion EUR to 5.1 billion EUR, larger than the predicted 4.8 billion EUR shortfall.

Today, Germany will release its ZEW economic sentiment reading for this month. The reading is projected to fall from 3.1 to -1.7 this June. Yep, that’s right, a negative reading is expected. This means that investors and analysts probably turned pessimistic about Germany’s economic prospects this month. Watch out for the actual figure due 9:00 am GMT because weak figures could undermine the euro’s strength.

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Earlier today, the Greek government managed to survive a very important confidence vote, giving EUR/USD a chance to stage a nice rally. EUR/USD traded as high as 1.4434, before falling back to 1.4370.

The votes show that 155 members of the Greek government voted positively, which means that Greece may finally get the aid it badly needs. What is left now to seal the deal is for the government to approve a “new and improved” 5-year austerity plan.

Unfortunately, data released from euro zone wasn’t as positive. The German ZEW economic survey printed a reading of -9.0 versus the -1.7 forecast. Meanwhile, the ZEW survey for the entire euro zone was at -5.9, opposite the 9.4 reading initially predicted.

Today, the only important piece of data scheduled for release is the Industrial New Orders. It is slated to show a 1.1% increase after the previous month’s 1.6% decrease. Rising industrial new orders are usually considered positive for the euro.

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No thanks to U.S. Fed Chairman Bernanke’s speech and weak economic data, the euro tumbled against its major pip buddies yesterday. EUR/USD ended the day 48 pips lower at 1.4357, while EUR/JPY slipped by 19 pips to 115.29.

Whatever happened to the Greek government surviving a no-confidence vote? As it turned out, traders weren’t so excited about the news as it’s only the beginning of a long and painful process of getting Greece out of its slump. Until the euro zone officials announce a concrete solution, markets might remain jumpy about buying up the euro.

Too bad that the Fed’s FOMC statement didn’t help the euro either. In his speech yesterday, Fed Chairman Ben Bernanke announced that the Fed will proceed with its plan to end its QE2 program in June, which provided relief for the Greenback.

Economic data from the euro region also failed to lift the euro. The industrial new orders data came in at 0.7% in April when analysts were expecting a 1.1% growth, while the consumer confidence report remained at a pessimistic -10 reading in June.

Let’s see if the euro bulls can hustle some muscle today when the parade of PMI reports is released. At around 7:00 am GMT to 8:00 am GMT we’ll get a hold on the manufacturing and services PMI of France, Germany, and the euro zone.

Also worth watching today is ECB President Trichet’s speech at 4:00 pm GMT. Though no big announcement is expected from the EU economic summit also happening today, it would be interesting to see if Trichet makes any comments regarding their progress with Greece’s debt problems.

Stick around for these reports, will ya?

520

Strike two! For the second straight day, EUR/USD ended the U.S. trading session 98 pips lower than its opening price. Risk aversion managed to find its way to the markets and cause in a massive sell-off in higher-yielding currencies like the pound, the euro, the commodity-based dollars.

Just to show you how risk-averse the market became, the VIX index, which is more commonly known as the fear index, was reported to have jumped by 15%.

Economic data from euro zone weren’t helpful at all. The PMI reports were below expectations, with the manufacturing PMI printing a 52.0 reading (lower than the 53.9 forecast) and the services PMI coming in at 54.2 (lower than the 55.5 forecast).

Today, the important data to watch out for is the German IFO business climate survey. Scheduled to come out at 8:00 am GMT, the survey is predicted to print a reading of 113.6, slightly lower than the number seen the month before. If the actual result fails to meet expectations, we could see EUR/USD take another hit!

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Like a foot blister that is felt with every step, concerns on Greece’s debt problems continued to peeve the euro bulls last Friday. EUR/USD fell by another 78 pips to 1.4181, while EUR/JPY went down by 79 pips to 114.10. Looks like euro traders are getting ready for battle, eh?

Though the euro region popped up a slightly better-than-expected German business climate and Italian retail sales reports for the month of June and April respectively, the euro traders were busy adjusting their positions ahead of this week’s events.

You see, around the middle of this week the Greek Parliament would vote for the latest round of austerity measures necessary to get the second bailout package from the EU and the IMF. Many economic hotshots are saying that if the Parliament fails to pass the new batch of austerity measures, it might trigger a sell-off in high-yielding assets that could rival the Lehman Brother era!

Well, we’re still a few days away from judgment day and tons of things can still happen. In the meantime, you might want to make some pips with the bunch of euro zone economic reports hitting your way this week.

Monday might be a blank for economic reports in the region, but tomorrow we’ll see the German consumer climate report at 6:00 am GMT, followed by Germany’s import prices and CPI figures. At 6:45 pm GMT we’ll see ECB President Jean Claude Trichet make headlines when he makes his speech in Brussels.

On Thursday Germany will once again start the day with its report on retail sales at 6:00 am GMT, but it will be followed by a French consumer spending report at 6:45 am GMT. Trichet will make a speech again at 7:00 am GMT (he sure loves the spotlight, doesn’t he?) just before the release of German employment numbers.

If the euro (and the global economy) is still intact on Friday, we’ll get hold of the region’s final manufacturing PMI numbers at 8:00 am GMT, as well as the region’s unemployment rate.

Stick around for these potential big-hitters, kiddos!

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The euro breathed a sigh of relief yesterday as Greece showed signs of progress in finding a solution for its debt problems. EUR/USD rallied by 67 pips from its open price to close at 1.4280 while EUR/JPY landed 52 pips above the 115.00 handle. Can the euro hold on to its gains today?

Things seem to be going smoothly for Greece as they moved one step closer to ending their debt drama. Both Germany and France already agreed to roll over Greek debt with their banks if Greece’s austerity plans get approved. But we’ll have to wait until tomorrow, when Parliament votes on the austerity program, to find out whether the deficit-cutting measures will push through or not.

Today, Germany is set to release its GfK consumer climate report. The reading is projected to dip from 5.5 to 5.4 this month, suggesting that consumers became slightly less optimistic in June. Watch out for the actual figure due 6:00 am GMT because stronger than expected results could give the euro another reason to rally.

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Back to back baby! For the 2nd day in a row, the euro jumped up the charts, even as the markets wait for the Greek Parliament vote. EUR/USD managed to gain 84 pips on the day, closing at 1.4364. Meanwhile, EUR/JPY tore up the charts, finishing 102 pips higher at 116.52.

The first bit of good news to support the euro yesterday was the GFK consumer climate report. It printed at 5.7, better than the expected 5.4 figure. Still, this was just a slight improvement from the previous month’s release, which came in at 5.6.

The real reason why the euro jumped up so much was because of comments made by ECB head honcho Jean Claude Trichet. Once again, Trichet uttered the magic words “strong vigilance”, which gave the markets reason to believe that the ECB could raise rates next month. In any case, this gave the euro a nice boost, as higher interest rates normally spurs demand for the local currency.

Raise rates? How can the ECB raise rates when they have this whole Greek tragedy souring the markets! Apparently the markets are quite optimistic that the Greek Parliament will vote in favor of passing the new austerity package, which will help pave the wave for more bailout money to flow in Greece’s bank accounts.

With that said, today will be a HUGE day in the forex markets. The Greek Parliament will be voting on new austerity measures today, with the meetings set to start at the beginning of the European session. In the off chance that the Antonis Samaras and the opposition party gather enough comrades to vote against the new package, we could see a sharp euro sell off.

Be sure to stay on your toes and pay attention! If you don’t think you’ve got the stomach for it, it might be better for you to chill out and evaluate before putting on a position! Good luck!

524

What a day for the euro! EUR/USD was able to rally to a high of 1.4450 while EUR/JPY closed 65 pips above the 116.00 handle when the Greek Parliament approved the austerity plans for their country. Phew!

Since the austerity program got the go signal from Parliament, Greece could now put these plans in place, which would enable them to avail of more funds from the EU and IMF. Now all Greece has to do is to get the implementation procedure approved, secure funds from the EU and IMF, and prove to the credit rating agencies that they’re no longer in debt trouble. And it’s not gonna be as easy as it sounds!

But for now, it seems that good progress has been made and optimism carried the euro higher against most of its counterparts. Today, the focus could shift back to economic data with plenty of reports on euro zone’s calendar. Both France and Germany, euro zone’s two largest economies, are set to print their consumer spending figures. Germany is expecting a 0.6% increase in retail sales, twice the 0.3% uptick seen last May, while France could print a 1.0% rebound in consumer spending. Watch out for these reports starting 6:00 am GMT.

Next, Germany is set to release its unemployment change report at 7:55 am GMT. For May, joblessness is predicted to drop by 17,000, more than twice as much as the 8,000 decrease seen last April. Since this is unemployment we’re looking at, a larger decrease (more negative) would be good news for Germany’s jobs market and for the euro.

Don’t forget that ECB President Trichet is set to deliver a speech at 7:00 am GMT. He could emphasize that Greece is one step closer to ending its debt drama, which could be all the more positive for the euro. On top of that, he could mention that the ECB might return to their rate-hiking ways now that the Greek debt crisis is almost over. Stay on your toes if you’re trading the euro!

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Is this a glitch in the matrix or am I experiencing a case of deja vu? Because I swear I’ve seen this before! For the fourth straight day, the euro rallied hard as the Greek Parliament decided to approve the implementation procedures for its austerity package. What’s next?

Austerity package… approved! Implementation procedures for austerity package… approved!

So far, the steps that the Greek Parliament has taken have helped restore confidence in Greece and the euro, giving the shared currency some much-needed support. What Greece needs next is for the IMF and EU to finalize its second bailout package so it doesn’t default on its debts.

Its euro zone neighbors seem to be doing the neighborly thing to do. Earlier this week, France convinced about 70% of its banks to extend the maturity of their Greek bond holdings. And yesterday, Germany followed suit and said that its largest banks agreed to do the same. This definitely gives Greece a bit of leeway since these two are its largest debtors.

I suppose its because of developments like this that no one seemed to care that yesterday’s economic releases were all negative!

German retail sales dropped 2.8% in May, worse than the 0.6% uptick that was predicted. French consumer spending fell 1.5%, the total opposite of the 1.0% rise that was anticipated. German unemployment change only saw a decrease of 8,000 instead of the 17,000 drop forecasted. And lastly, euro zone CPI remained steady at 2.7% rather than rise to 2.8% as analysts had warned it would.

Today, we have a couple more reports to work with. At 8:00 am GMT, the euro zone is set to publish its final manufacturing PMI. Survey says no revisions will be made to the previous reading of 52.0.

Similarly, the unemployment rate isn’t expected to showcase anything new as forecasts have it clocking in at 9.9% again. Catch the actual results at 9:00 am GMT.

Now, keep in mind that these reports will probably take a backseat to general risk sentiment, so it’s best not to lose track of the big picture. Good luck, kids! Let’s start July off strong!

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And that’s five for five! Despite the lack of high-caliber reports, the euro was able to close the week with a clean streak against the dollar as it ended Friday’s trading 26 pips higher from its opening price at 1.4528. Boo yeah!

It seems like investors breathed a sigh of relief when Greece was able to beat the odds in avoiding a default last week. As you probably know by now, the Greek parliament voted for austerity measures and their implementation amid the massive protests in the streets.

Hmmm, I wonder if euro bulls still have enough swag to push EUR/USD to 1.4700 within the next five days. Let’s look at what we have in store for this week, shall we?

For today, only the Sentix investor confidence index for July and PPI report for May are on tap. At 8:30 am GMT, traders are expecting to see that investors grew less optimistic of business conditions in Europe with the forecast lower at 1.1 than April’s 3.5 reading. Then at 9:00 am GMT, producer prices are anticipated to print a 0.1% downtick.

Tomorrow at 8:00 am GMT, the final services report for June will be released and it is eyed at 54.2. An hour after that, at 9:00 am GMT, we’ll get dibs on consumer spending for May. Analysts predict for a 0.9% decline after retail sales printed at 0.7% the month prior.

Come Wednesday, the final GDP report for the Q1 2011 is predicted not to show any revision with the forecast still at 0.8%. Tune in to the actual figure at 9:00 am GMT. On the other hand, expectations for the German factory orders report, which will be released at 10:00 am GMT, for May aren’t that high. Analysts think that orders declined by 0.5% during the month.

Probably the most important event for this week listed on our forex calendar for the euro is the ECB interest rate decision. Due on Thursday at 11:45 am GMT, a lot of market junkies are expecting ECB President Jean-Claude Trichet to announce a 25-basis point increase to push interest rates up to 1.50%.

Also due on that day will be the German industrial production report for May at 10:00 am GMT which is seen to erase the 0.6% decline it posted in April. The consensus is for a 0.7% increase in the value of industrial output produced for the month.

Whew! We have quite a handful of economic data this week, eh? Better get those pens and start marking your calendars kids!

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While fireworks were aplenty in the U.S., EUR/USD found itself in steady mode as it just traded within a relatively tight 84-pip range. The pair topped out at 1.4579 and found a bottom just a few pips below the 1.4500 major psychological level.

Euro zone’s forex calendar today will be pretty uneventful as only some low-tier economic releases are due.

First up is the Final Services PMI at 7:00 am GMT. The market expects a reading of 54.2, exactly the same as last month’s figure. The second report will come at 9:00 am GMT. The retail sales report is expected to show a 0.9% decrease for this month, which is opposite the 0.7% rise (revised down from 0.9%) seen the month before.

I wouldn’t read too much into the reports though, as they don’t usually have a strong impact on price action. Also, it [B]IS[/B] already summer, which means a lot of traders are out on vacation. This means that we could see yesterday’s highs and lows serve important resistance and support levels!

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Just when we thought the worse was over for the euro, Moody’s came in to spoil the party. Moody’s hit the market with a surprise downgrade, which sent the euro tumbling late in the New York session. EUR/USD dropped a solid 109 pips on the day to close at 1.4423.

So who was on the receiving end of Moody’s smack down yesterday?

If you answered Portugal, then you would be correct! Sorry, don’t have a prize for you, but do take satisfaction in knowing that you’re on top of your fundies game.

Moody’s downgraded Portuguese debt down to Ba2, putting their bonds on junk status. Moody’s pointed to difficulties in cutting spending, tax collection, and economic growth as the primary reasons for the downgrade.

Does this mean that Portugal will need another bailout as well? It’s too early to tell, but this is definitely something to keep an eye out for down the line.

In other news, euro zone wide retail sales also came in worse than expected, as they fell 1.1% in May. It was expected that sales would fall by just 0.9%. This highlights that consumer spending on a euro zone wide basis is still unstable.

Looking ahead, we’ve got German factory orders coming in at 10:00 am GMT. Word is that orders dropped by 0.5% in May. If the report comes in much worse than anticipated, we could see another euro sell off, so all you euro bulls out there, be careful!

529

Ka-pow! The euro once again got punched in the gut in yesterday’s trading as sovereign debt issues choke-slammed investors’ appetite for risk. EUR/USD closed 114 pips at 1.4309 while EUR/JPY ended the day 108 pips below its opening price.

First there was Moody’s decision to downgrade Portuguese bonds to junk status. The move had market junkies talking about Ireland being next in line for a downgrade. Uh-oh…

Then, German Deputy Finance Minister Wolfgang Schauble’s bond swap proposal got investors nervous that France’s proposal to rollover bonds may not work. But don’t think that Herr Schauble just threw the idea up in the air to ruffle the feathers of investors, no sir!

He came up with the plan (which would require private investors to exchange their maturing bonds for bonds with longer maturity) after credit rating agencies announced that the French debt rollover idea may still lead to a default.

As if that wasn’t enough to scare off investors, Moody’s stress test results showed that 26 out of 91 banks being tested could need a bailout soon. Yikes!

Not even the better-than-expected German factory orders report for May was able to offset the negative vibes. According to the report, the amount of purchase orders that manufacturers received during the month increased by 1.8% and beat the 0.5% decline that the market was anticipating.

We also had the final GDP report Q1 2011 which came in as expected at 0.8%.

Today is a big day for the euro as the ECB is due to announce its interest rate decision at 11:45 am GMT. Market junkies are expecting ECB President Jean-Claude Trichet to holler a rate hike which would set the official cash rate in the region up to 1.50%. However, with the current market sentiment, I don’t think that investors would be paying that much attention to interest rate differentials.

Nonetheless, keep an ear out for what Trichet has to say at 12:30 pm GMT. Who knows, if he hints that more rate hikes are in store for this year, maybe the euro will be able to pare some of its losses.

Also on tap today is the French trade balance for May at 6:45 am GMT with the forecast for a 5.7 billion EUR trade deficit and the German industrial production report for May at 10:00 am GMT which is eyed at 0.7%.

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Nothing like a rate hike to boost you up the charts! With the ECB hiking rates for the second time, the euro zoomed up the charts against all its major counterparts. EUR/USD found itself 44 pips higher at 1.4353, while EUR/JPY soared up the charts to finish at 116.58, up 77 pips on the day.

Once again, the markets were correct, as the ECB raise rates by another 25 basis points. And while ECB head honcho Jean Claude Trichet didn’t utter his favorite catch phrase (“strong vigilance”), he did mention that there are strong inflation risks, indicating that the central bank would be open to more rate hikes later this year. Clearly, the ECB is trying to keep its options open as it tries to fight off rising inflation while keeping in mind Greek and Portuguese debt concerns.

In any case, the statement gave the euro a nice boost, allowing it to push ahead. As long as the prospect of further rate hikes remains, the euro should find nice support in the coming months.

In other news, German industrial production figures came in better than anticipated, showing a 1.2% increase during the month of May. It was projected that production would pick up by 0.7%.

Nothing scheduled for today, but that doesn’t mean we won’t see some wild moves in the market. Keep in mind that it’s NFP Friday. If you want an idea on how to play EUR/USD during the New York session today, you might wanna check out Forex Gump’s latest post!

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Well, the pro-euro sentiment didn’t last long at all! Thanks to some bad news propping up in the euro zone, the euro took quite a hit last Friday. EUR/USD dropped 96 pips, closing at 1.4260, while EUR/CHF fell almost 200 pips to finish at 1.1929.

Concerns about the state of European banks, as well news that the meeting between the EU and European Commission would include more people, helped sparked a wave of risk aversion. Some believe that Italy may now be at risk of a bailout. If the country is indeed in trouble, then the ECB, EU, and IMF, will have to come up with new strategies to help contain contagion fears.

This news comes at a bad time, as Portugal was just hit with a credit downgrade. It seems that one by one, each PIIGS member is entering the spotlight. I wouldn’t be surprised if we hear bad news about Ireland hit the market later this week!

For today, all we’ve got is French industrial production figures, which are due to hit the markets at 6:45 am GMT. Expectations are that production rose by 0.5% last May, which would be a nice improvement over the previous two months, which saw a dip in production.

Still, I’m not too sure whether this will give the euro the boost it needs to get out of its slump. The markets seem to be focused on sovereign debt right now, and if this continues, we could see the euro continue to slide throughout the week.

532

Woah! It seems like the market grooved to Snoop Dogg’s famous tune yesterday as investors dropped the euro like it’s hot! The shared currency lost to almost all of its counterparts, giving up 229 pips to the yen when EUR/JPY closed at 112.54, and 230 pips to the dollar when EUR/USD ended the day at 1.4013.

Heck! It even hit a new all-time low against the Swissy at 1.1672 before closing at 1.1711 with a 211-pip loss for the day.

The good vibes posted by the better-than-expected French industrial production report for May, which printed at 2.0% and beat the 0.5% market consensus, was easily overshadowed by concerns about a debt contagion spreading to the euro zone’s third biggest economy, Italy.

From what I’ve heard, it seems like Italy’s most recent austerity package that passed through cabinet didn’t really impress analysts and was criticized for being too vague. It also didn’t help that Prime Minister Silvio Berlusconi explicitly showed his disapproval of the austerity measures, hinting that the government isn’t committed to keeping the country’s finances in control.

The proposed 47 billion EUR austerity package has yet to be approved by the parliament and if more signs come up that would hint to it not getting passed, we may just see the euro get sold off even further.

We only have the third tier CPI reports from France and Germany today at 5:30 and 6:00 am GMT, respectively. Both CPI reports are expected to show a 0.1% uptick in inflation for June. However, more important than that is market sentiment, so make sure you get a feel of the market’s mood before you pull the trigger in today’s trading.