Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
653

The euro ended 2011 on a low note as it was sold off sharply in the last days of the year. EUR/USD ended 2011 below the 1.3000 handle, just pips away from the year’s lows. So will the euro’s woes carry over into 2012, or will we see it come back from the dead?

In the last days of 2011, the euro continued to weaken as risk aversion persisted on concerns about the European economy. Of course, it didn’t help that Italy’s bond auction failed to impress investors and trigger a euro rally. But what dealt the biggest blow to the euro was data that showed that banks had hoarded the cash that was recently injected by the ECB instead of lending it out!

Apparently, banks are still worried as heck about the region’s financial situation… so worried that they’d
rather hold money at very low interest rates from the ECB than lend to each other. Yikes! I daresay, this could be a bad omen for 2012!

On the economic docket this week, we’ll start off with German unemployment data tomorrow, followed by the euro zone CPI report on Wednesday. Then on Thursday, we’ll take a look at German retail sales and euro zone industrial orders data. To cap the week off on Friday, we’ll have euro zone unemployment and retail sales on tap.

Since several countries will be celebrating bank holidays today and the euro zone won’t be publishing any reports, you might wanna use this time to prepare yourself for what could lie ahead in 2012! Good luck and may we all start the year with a bang!

654

Talk about starting the year on the wrong foot! The euro incurred losses against its major counterparts on the first trading day of 2012. EUR/USD was down 15 pips, meanwhile, EUR/JPY hit its 10-year low at 99.36 before ending the day 22 pips below its opening price at 99.40.

As it turns out, the ghost of the euro zone’s two-year-old debt crisis came to haunt the currency yesterday. It also didn’t help that we didn’t get any top-tier data from the region that could’ve sparked positive vibes for the euro. Only the final manufacturing PMI report for December was released and it printed as expected at 46.9.

Perhaps the German unemployment change report will be able to make the euro a wee bit a-PIP-ling (Ha! Get it? Appealing, apipling?) Due to be released at 4:55 pm GMT, the report is expected print a decline of 9,000 people in the number of unemployed individuals in Germany. If the actual figure prints an even bigger loss, we may just see the currency rally, so watch out!

655

Risk is ON, baby! Positive stats from the euro zone and the U.S. helped trigger a round of risk taking that saw EUR/USD rally 127 pips to end at 1.3054. Will the euro chalk up its second win of the year today?

All was good in the hood for the euro zone yesterday as its lone report came in much better than expected. The German unemployment change report, which was predicted to show a decrease of 9,000, showed an awesome drop in the number of unemployed people in Germany of 22,000 instead! In turn, this took the unemployment rate down from 6.9% to 6.8%. Talk about thriving in the face of adversity!

Today, we have more tier 2 reports coming out of the euro zone. First up is the French consumer spending report, which is slated to print a 0.3% increase following the previous month’s flat growth. Catch this report at 7:45 am GMT.

Then at 10:00 am GMT, we’ll take a look at the region-wide CPI flash estimate, which most believe will see a downward revision from 3.0% to 2.8%.

Keep in mind that although these reports don’t usually move the markets, they could trigger another round of euro buying if they show highly upbeat figures. Just take a look at yesterday’s unemployment data!

656

Burn, baby, burn! The euro got burnt at the stake yesterday, as it got torched versus all its major counterparts. EUR/USD dropped 112 pips to finish at 1.2946, while EUR/JPY sank to new lows at 99.32, marking a 74-pip loss on the day.

There were actually a couple of factors that caused the euro’s demise yesterday.

First, the CPI report showed that inflation died down a bit from 3.0% in November, to just 2.8% last month. Some feel that this could give the ECB more room to cut rates once again sometime later this year.

Second, German bond auction results were as disappointing as Ryan Reynolds acting career. While yields on 10-year bonds were at a somewhat acceptable 1.94%, Germany was only able to sell 4.05 billion EUR worth of bonds, way short of its target of 5.0 billion EUR. This goes to show that even though Germany may be the kingpin of the euro zone, there is still some concern as to how “safe” its bonds are.

Third, we also received data that showed that banks have deposited up to 453 billion EUR in the ECB’s deposit facility, which was a new record high. This indicates that instead of pouring cash into the economy, banks are just using the ECB’s offerings and loans to help shore themselves up. That ain’t good at all!

Tying this all up, along with a pullback in risk taking yesterday, was a recipe for disaster for the euro. With a couple of second tier reports scheduled for release today, can the shared currency bounce back today and bust a cap on the rest of the major currencies?

At 7:00 am GMT, German retail sales figures will be released. Word is that after declining by 0.2% in November, sales order may have risen by 0.2% in December.

Later on at 10:00 am GMT, euro zone industrial new orders data is expected to show that orders rose by 2.4%. This would mark a sharp improvement from the -6.4% decline we saw the previous month.

Should these two reports come in better-than-expected, it may help the euro get back on track and erase some of yesterday’s losses.

657

Looks like no one wants their hands on the euro these days! The shared currency was dropped like a hot potato yesterday as investors remained pessimistic over the fate of the euro zone. The euro weakened against all of its major counterparts, as EUR/USD fell 152 pips to 1.2794 and EUR/JPY dropped 51 pips to finish at 98.82.

One reason why the euro failed to draw demand yesterday was because the euro zone received more bad feedback on the economy. First, the German retail sales report showed much-worse-than-expected results in November 2011. Sales actually dipped 0.9% instead of rising by 0.2% right before the holidays! What a letdown, eh?

After that, the industrial new orders report failed to meet expectations, showing a growth of just 1.8% in October 2011, which is 0.6% lower than anticipated. Meanwhile, September 2011’s 6.4% decline was revised even lower to mark a 7.4% decrease. Yeouch! Talk about adding insult to injury!

Meanwhile, the French bond auction showed investors’ hesitance to hold European assets as France was only able to sell a little over 4 billion EUR worth of its 8 billion EUR bonds. This also saw yields nudge slightly higher. With the way market playas have been treating the euro and European bond auctions, it seems like they’re betting things will get a lot worse before they get better for the euro zone. Pessimism at its worst yo!

Later today, we have more data coming out. At 10:00 am GMT, the region-wide retail sales report, slated to show a 0.2% decline after October 2011’s 0.3% uptick, will be available. At the same time, we’ll have unemployment data on tap, though most analysts see the unemployment rate staying flat at 10.3%. Then at 11:00 am GMT, we’ll have German factory orders data on deck. Look for this report to print a 1.6% decline following October 2011’s 5.2% increase.

But keep in mind, these reports may not have much of an impact on the markets today as the U.S. NFP is also due later in the day. In any case, stay sharp and practice smart risk management, kiddos!

658

Once again, the euro found itself falling face first to the mat, as it suffered multiple injuries versus its major counterparts last Friday. EUR/USD got with a nice dollar rally haymaker, sending the most traded currency pair to 1.2722, down 62 pips on the day. Meanwhile, EUR/JPY closed below the 98.00 handle, down 86 pips from its opening price.

It’s becoming as clear as the bald spot on my dome that the markets are maintaining a bearish euro stance, which is why it was one of the bigger losers last week. Italian yields on 10-year bonds are still above the key 7.0% mark and as long as they do, the euro should be in for more weakness in the coming week.

Poor economic data releases last Friday also didn’t help the euro’s cause. Retail sales fell 0.8% in December, which was way worse than the expected 0.2% decline. German factory orders also disappointed, falling 4.8% in November, which was a complete reversal from the 5.0% growth seen in October.

Meanwhile, the euro zone wide employment rate remained steady at 10.3% for the second month in a row.

For today, we’ve got a couple of second tier reports scheduled for release during the London session.

At 9:30 am GMT, the Sentix investor confidence index will be made available. It is projected to print at -23.8, which would mark a slight improvement from the -24.0 reading we saw last month.

Later on at 11:00 am GMT, German industrial production figures are expected to have decreased by 0.5% in the past month after printing growth of 8.0% the previous month. Take note that last week’s factory orders were deep in the red, so I wouldn’t be betting on a better-than-expected result from today’s report.

659

The euro pulled an R. Kelly move in yesterday’s trading as it bounced-bounced, bounced-bounced on the charts. EUR/USD found support at the 1.2700 handle and ended the day 85 pips above its opening price at 1.2773. Meanwhile, EUR/JPY closed at 98.13 after opening at 97.54.

Most market junkies say that the euro’s rally yesterday was only because of short squeezing as traders pared their bearish bets ahead of the bond auctions we have for this week. German Chancellor Angela Merkel’s optimism after her meeting with French President Nicolas Sarkozy might have boosted market sentiment too. She said she’s anticipating the EU to finalize its fiscal pact by the end of the month. On top of that, with three out of four reports came in better than expected from the euro zone. So with all that, I guess it wasn’t that surprising to see the euro have a good day.

Both France and Germany printed better-than-expected trade balance reports in November. France’s imports only outpaced exports by 4.4 billion EUR, smaller than the 5.8 deficit that analysts were bracing for. Germany’s report, on the other hand, topped consensus which was for a 12.3 billion surplus when it came in at 15.1 billion EUR.

Then there was January’s Sentix Investor Confidence index which printed a more modest decline at -21.1 than the -23.8 figure that was predicted. This implies that investors and analysts aren’t that optimistic about economic conditions in the region.

However, Germany’s industrial production report for November showed a bigger contraction than what analysts had anticipated. The figure came in at -0.6%, larger than the consensus of -0.5%.

Today we only have the French industrial production report on tap at 7:45 am GMT. A figure better than the expected 0.1% uptick will probably provide the euro with some support, so watch out! Also be sure to keep tabs on the Chinese trade balance report. It doesn’t have a fixed release schedule but it would most probably affect market sentiment. Keep in mind that it is anticipated to print a trade surplus of 8.3 billion for December.

660

Slow and steady is the way to go, fellas. The euro might not have followed through with its gains, but it didn’t lose out either. EUR/USD steadied at its 1.2273 open price, while EUR/JPY closed 2 pips higher than its open price after reaching an intraday high of 98.47.

I guess it’s a good thing that economic reports released from the region yesterday were able to keep the euro bears at bay! France’s industrial production clocked in a 1.1% growth in November, while ratings agency Fitch recently reaffirmed Germany’s AAA rating.

Meanwhile, EU Commissioner Rehn also made waves yesterday by announcing that Eurobonds would rival U.S. treasuries as a safe haven. Talk about taking a leap of faith!

Aside from Germany’s Angela Merkel having a meeting with Italy’s Monti today, only the region’s final GDP report at 10:00 am GMT is scheduled for release today.

Still, it doesn’t mean that you should go play with your new iphone 4s you got for Christmas! Watch out for any market-moving reports, will ya? Who knows, you just might sneak in a couple of pips from those news reports!

661

With Germany showing its willingness to support the euro zone, the euro could have had it all, rolling in the pips in yesterday’s trading. But it didn’t. EUR/USD crept up to a high of 1.2791 before plunging down to end the day 66 pips below its opening price at 1.2707.

After her meeting with Italian Prime Minister Mario Monti, German Chancellor Angela Merkel hinted that her government is willing to put more money in the ESM in order to “send message to markets.” It’s not everyday that we hear such supportive remarks from Germany, however, it still wasn’t enough to fuel the euro on the charts.

It looks like traders got disappointed with euro zone’s final GDP report for Q3 2011 which showed that the region only grew by a measly 0.1% during the quarter after being previously reported at 0.2%. Of course, this got market junkies talking that if growth was so dismal then, the economy probably contracted in the final quarter of the year.

There’s also the ECB interest rate decision today which traders seem to be worried about. After cutting interest rates in December by 25 basis points to 1.00%, ECB President Mario Draghi is not expected to announce another rate cut this time around. Economic gurus feel that the central bank will wait for the effect of the cut to sink in first before another round of easing. However, with the ECB under pressure to support Italy and the negative consumer spending and investor confidence reports we’ve seen, we might hear dovish remarks that could send the euro lower on the charts. Keep an ear out for it at 12:45 pm GMT.

Aside from that, be sure to also be on your toes for the second-tier EZ industrial production report, due earlier at 10:00 am GMT. It is anticipated to print a decline of 0.2% but a better-than-expected figure may just give the euro its much-needed boost. Good luck!

662

Yesterday turned out to be a really good day for the euro, thanks to ECB President Mario Draghi’s optimistic interest rate statement. EUR/USD, which began the day at 1.2707, found itself trading strongly above the 1.2800 level by the end up of the U.S. trading session.

According to Draghi, the steps that the European Central Bank (ECB) has recently taken like the interest rate cut and their support for the banking system have been working well. He also indicated that even though the economy have been deteriorating, it starting to stabilize.

On the economic front, the Industrial Production report came in with a 0.1% decline, which was slightly better than the 0.2% decrease initially expected. It was also an improvement from last month’s 0.3% fall.

No major news release from the euro today, so we could see the currency mainly moved within a range. If you look at the daily chart of EUR/USD, you’ll see that the pair has been mostly trading sideways. Keep an eye on those previous day highs and low, as they could serve as inflection levels for today!

663

Surprise, surprise! The euro zone got slapped with another debt rating downgrade and this time it was on FIVE member nations. This was enough to force both EUR/USD and EUR/JPY to gap down over the weekend, but will these pairs continue to slide down today?

Euro pairs seemed to ignore the euro zone’s better than expected trade balance last Friday, as the report showed that the surplus widened from 0.5 billion EUR to 6.1 billion EUR in November. That was because traders focused more on the debt rating downgrades from S&P. France lost its pristine triple-A rating as their sovereign debt was brought down to AA+ with a negative outlook. Spain’s rating was downgraded to A while Italy’s was cut to BBB+ and Austria’s was slashed to AA+. Last but certainly not least, Portugal’s debt was downgraded to junk status. Ouch!

Although many were relieved to hear that Germany’s debt rating was unchanged, most market participants couldn’t help but worry about the impact of France’s debt downgrade. You see, France’s credit rating is tied with the EFSF’s, which means that the downgrade could affect the fund’s borrowing costs and this would make it more difficult for the debt-ridden nations to pay up.

As for economic data, the action starts on Tuesday as the euro zone will release its CPI figures and overall ZEW economic sentiment. Germany is also set to release its ZEW economic sentiment reading then. Unless those reports come in significantly better than expected, traders could stay focused on the region’s debt situation, which appears to be getting worse.

On Thursday, euro zone is set to release its current account balance, which could also come in higher than expected like its trade balance. The ECB monthly bulletin is also due then while the German PPI is set for release on Friday.

With hardly any top-tier report on the euro zone’s schedule, any updates on the euro zone debt situation could have a huge impact on the euro’s movement. Stay on your toes!

664

The euro started the week on a very quiet note as it simply moved sideways against other major currencies. EUR/USD traded within a across the board yesterday. It traded within a very tight 23-pip ranged while EUR/JPY bounced around a 42-pip box.

The absence of high profile economic reports was to blame for this. Euro zone’s economic calendar only had the German wholesale price index and U.S. banks were on holiday.

Today will probably be much different though two tier 1 events are scheduled to hapen at 10:00 am GMT later.

First is the German ZEW economic sentiment survey. The survey, which measures the economic outlook of Germany using a positive/negative scale, is predicted to print a -49.7 reading. Last month, the figure was -53.8.

Then there’s euro zone’s consumer price index. The market expects the CPI to show a 2.8% inflation rate, just like last month. Meanwhile, the core version is slated to reveal a 1.6% rate. Higher-than-forecast figures usually provide support for the euro.

665

Make way for the currency hotshot! Despite continued onslaught of credit rating downgrades in the euro zone, the euro still managed to clobber its major counterparts yesterday. EUR/USD even tipped an intraday high at 1.2809 before it closed 67 pips higher than its open price, while EUR/GBP also staged a nice recovery with a 40-pip gain.

The economic reports released probably egged on the euro bulls yesterday, especially when the German ZEW economic sentiment report came in at -21.6 in January, a lot more optimistic than the expected -49.7 reading.

The good vibes didn’t end in Germany though. The euro zone’s own ZEW reading is at -32.5 this month, also a huge improvement from December’s -54.1 figure. Lastly, the region’s CPI printed at 2.7%, a bit cooler than its previous 2.8% price growth.

Still, it doesn’t bode well for the region that credit rating agencies are on to the euro zone member states. Talks of Greece defaulting by March and Hungary asking for bailout are more persistent than ever, and I think market players will need some kind of assurance fast that the euro zone officials are doing something to stem investor fears.

For today we only have the Italian trade balance report at 9:00 am GMT on tap. The country’s trade deficit is expected to shrink a bit in December, but a higher deficit just might weigh on the euro.

Also keep your eyes on any news about the euro zone member states, will ya? We never know when the next big market-moving report might hit!

666

You gotta admire the euro’s resiliency! It’s been shrugging off the bad vibes of the debt crisis and has been climbing up the charts like cray-cray! It posted its third straight victory over the dollar yesterday as EUR/USD climbed about 130 pips to close at 1.2860. But now that the pair is facing the top of a falling trend line, will it finally turn down?

If you’ve been scratching your head at why the euro has been rising despite concerns and threats to the euro zone, then you aren’t alone! It’s hard to pinpoint exactly why the euro has been gaining ground, but one possible reason is that traders are covering their shorts because they’re anticipating a move from European officials.

Some say the ECB may take on more quantitative easing. Others say the IMF may bump up its lending capacity. And while all of these are unconfirmed rumors, it seems to be doing a pretty good job at keeping the euro from sliding.

Today, we have a couple of tier 2 reports on tap. The euro zone current account is due at 9:00 am GMT, and most expect the deficit of 7.5 billion EUR to turn into a surplus of 0.5 billion EUR. At the same time, the ECB monthly bulletin will be published. Since this report could provide us with new insight about the state of the economy, it’d be a good idea to give it a look.

667

Well whadya know… the euro managed to post another winning day, all thanks to very successful bond auctions in Spain and France. This caused borrowing costs to fall, which gave the market a reason to be positive. EUR/USD ended the U.S. trading session at 1.2967, 107 pips higher from its opening price that day.

In addition to the auctions, the market also drew optimism from ECB President Mario Draghi’s speech. He said that there was significant progress in the fiscal front of Europe, even though there were downside risks. He noted that he thinks that the demand for 3-year loans that they would offer would be high.

The only “bad” news for the day was the weaker-than-expected current account balance. It came out with a 1.8 billion EUR deficit, opposite the 500 million EUR surplus initially predicted.

Not much on euro zone’s forex calendar today as only the German PPI is due. It is slated to print a 0.1% increase, just like the figure seen the previous month.

668

The euro ended its 4-day winning streak last Friday as traders closed out for the weekend. EUR/USD ended the U.S. trading session 1.2934, 34 pips lower from the beginning of the day.

Then, earlier today, the pair once again opened with a gap down as news that creditors failed to reach an agreement on cutting Greece’s debt. It appears that the optimism we saw last week is starting to fade, and we’re seeing a return of risk aversion.

There are a bunch of medium-tier data scheduled for release on euro zone’s economic calendar this week. Tomorrow, starting at 8:00 am GMT, the region’s purchasing managers’ index are due. The market is expecting the overall index to show a 47.4 reading for manufacturing and a 49.1 reading on services.

On Wednesday, the German IFO business climate survey will be published. The forecast is a 107.7 figure, slightly higher than last month’s 107.2.

The last important report to watch out for will be released on 7:00 am GMT Thursday. The GFK consumer climate survey, which measures how optimistic or pessimistic consumers are with regard to the economy, is slated to show a 5.6 reading.

669

Currahee! With risk appetite on its back, the euro marched up the charts like a member of the 506, posting new highs versus the dollar and the yen. After opening below 1.2900, EUR/USD rallied throughout the day, clearing the 1.3000 barrier to close at 1.3034, marking a 172-pip gain. Meanwhile, EUR/JPY rose 132 pips to finish at 100.33.

To be honest, I find the euro’s persistence somewhat surprising, as not much progress has been on Greece’s debt swap deals. Even though bondholders are willing to take massive haircuts on Greek debt, there is still a lot of details to be worked out. Time is running out and according to Fitch, if a deal isn’t made by March 20, then Greece will be forced to default!

So, even with the threat of a default, why has the euro been rallying?

One reason could be that the markets are still in short-covering mode. Euro shorts were recently at all-time highs, so it’s only natural to see some correction in the markets.

For today, we’ve got a slew of French, German, and euro zone manufacturing and services PMIS coming out starting 8:00 am GMT. Most of the PMIs are expected to come in below the line-in-the-sand 50.0 mark, which would signal slight contraction in those sectors.

In addition, industrial new orders figures are also due at 10:00 am GMT and are expected to show a 2.1% downtick in orders this past November.

If the reports come in better-than-expected, we may just see the euro soar to new highs.

670

Higher and higher it goes! Though the euro lost 8 pips against the dollar, it put up big wins against the yen and the Swissy thanks to strong PMIs! EUR/JPY climbed 93 pips to finish at 101.26 just as EUR/CHF closed at 1.2091 to record a 14-pip gain. When will its rally end?

Amidst all the concern about the euro zone heading into another recession, yesterday’s PMIs came in surprisingly upbeat. Who would’ve thought, right?

Except for the French manufacturing PMI, all reports released yesterday managed to exceed expectations. As a whole, the euro zone’s services PMI improved from 48.8 to 50.0 (versus forecasts of 49.1), and the manufacturing PMI ticked up from 46.9 to 48.7 (versus forecasts of 47.4).

But can these figures keep the euro afloat? Hmm… Only time will tell! The euro zone is still in a heap of trouble, and as a matter of fact, just yesterday word got around that Greece might be downgraded to “selective default” by S&P! Ouch!

Anyway, up ahead we have more data coming in the form of the German IFO business climate report. Look for the index to improve from 107.2 to 107.6 at 9:00 am GMT. After that, catch ECB President Mario Draghi as he delivers a speech at 1:15 pm GMT on “Europe’s Economic Outlook: What steps are needed to restore growth and confidence across the Eurozone?”

Keep your eyes locked on EUR/USD today, fellas! The FOMC statement is also due later in the New York session, and that may dictate price action on the pair for days to come!

671

EUR/USD popped up the charts yesterday as it broke above the 1.3000 and 1.3100 handles and reached a high of 1.3122. EUR/JPY also had its share of gains as it drew close to the 102.00 major psychological level. Can the euro hold on to its gains today?

One factor that boosted the euro up the charts was Germany’s better than expected Ifo business climate index. The reading climbed from 107.3 to 108.3 for this month, outpacing the consensus at 107.6. This shows that the economic assessment and outlook of businessmen improved in euro zone’s largest economy.

Another factor that propped the euro up against the safe-haven Greenback was the FOMC statement, which revealed that the Fed plans to keep rates low until late 2014. Two more years of low U.S. interest rates? Now that’s enough to trigger a massive dollar selloff!

As for today, only the GfK German consumer climate reading is due from the euro zone. The reading for the current month is expected to hold steady at 5.6 but, given the upbeat results of the business climate survey, consumers might also be a tad more optimistic about euro zone’s prospects this time. Keep an eye out for the actual report due 7:00 am GMT!

672

Is the euro rally starting to fizzle? After popping higher during the start of the London session, EUR/USD quickly erased its gains and closed 10 pips down from its 1.3113 open price. EUR/JPY also chalked up a losing day as it slipped a couple of pips below the 101.50 handle.

Stronger than expected GfK German consumer climate data gave the euro a boost during the first few hours of the London session as the report printed a 5.9 reading for January, higher than the consensus at 5.6. Just like the better than expected German IFO business climate report released the other day, the consumer climate figure indicated that Germans are feeling more optimistic about their economy.

However, euro pairs quickly retreated from their highs when news broke out that the ECB still couldn’t reach a deal with Greece when it comes to their sovereign bonds. You see, the central bank is currently holding more than 400 billion EUR in Greek bonds in its balance sheet and is currently debating with Greek creditors over what to do with these bonds. Unless they reach an agreement soon, the euro might just keep sliding down.

As for economic data, euro zone is set to release money supply data along with private loans figures. However, these reports aren’t expected to have a huge impact on euro price action. What you should probably focus on is ECB head Mario Draghi’s speech at 1:15 pm GMT since he could shed more light on the next steps that the ECB plans to take when it comes to dealing with the ongoing debt problems in their region.