Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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Stop, drop, kaboom! The euro came under a lot of selling pressure again yesterday as “Grexit” concerns continued to plague the foreign exchange market. EUR/USD closed out the U.S. trading session with a 79-pip loss at 1.2601.

It appears that the market isn’t letting this one go easily. Fears regarding Greece’s ability to remain in the euro zone still persist, which is hurting the euro a lot. Even the better-than-expected economic reports yesterday failed to provide support for the euro (Current Account Balance came in at 9.1 billion EUR surplus versus the 4.7 billion EUR surplus forecast while the Industrial New Orders showed a 1.8% gain versus the 0.1% decline expected).

Today, the economic docket has a lot in store for us. Every half hour starting 7:00 am GMT, the PMIs for the major members of the euro zone will begin publishing. First up is France’s, followed by Germany’s, then finally at 8:00 am GMT is the PMI for the entire region. These reports tend to have a strong impact on the euro, so make sure you catch ‘em!

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And it’s strike three for the euro! No thanks to weak economic data and a disappointing speech from ECB’s Draghi, the euro continued its losing streak against its major counterparts. EUR/USD fell by another 68 pips to 1.2533, while EUR/GBP capped the day right at .8000.

As if fears of a Greek exit wasn’t enough to energize the euro bears, most of the region’s PMI numbers also disappointed expectations. Manufacturing PMIs from France, Germany, and the euro region all printed weaker than their previous figures.

Meanwhile, Germany was the only economy that was spared from weaker services PMI. All isn’t good in Merkel’s country though. Germany’s Ifo business climate index, a measure of investor confidence, fell to a 106.9 reading in May after clocking in at 109.9 in April.

Will the German consumer climate report at 6:00 am GMT show the same weakness in the economy? Only that and the Italian retail sales report at 8:00 am GMT is scheduled to come out of the region today, so you better keep your eyes peeled for any euro zone official that might shake risk sentiment!

Word on the hood is that market players are waiting for the ECB to show signs of helping Greece before they let up on the euro selling. Will the ECB rise to market expectations? Stay at the edge of your seats!

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With the threat of a “Grexit” still looming over its head, the euro found itself continuing its steady crawl down the charts last Friday. It lost another 19 pips to the dollar as EUR/USD greeted the weekend at 1.2513, while EUR/JPY slid down another 9 pips to 99.68.

However, it seems that bearish sentiment for the euro has eased over the weekend as euro crosses all gapped up to start the week. Still, the euro ain’t out of the woods! The threat of a Grexit is as real as ever, homies!

In other news, the homeboys that predicted that the German GfK consumer climate report would come in at a reading of 5.7 again were right on the money! The index stayed flat for the month of May, indicating stability at the start of the summer. I did a little research, and as it turns out, consumers have become more optimistic and are now more willing to spend their dough! Leave it to Germany to show the rest of the euro zone how its done!

Meanwhile, Italian retail sales disappointed as it showed a 0.2% decline (versus forecasts that called for a 0.1% decrease) following the previous month’s solid 0.9% surge.

If you plan on trading the euro today, take note that French and German banks will be closed in observance of Whit Monday. As for the rest of the week, we’ll see a bunch of tier 2 reports. One of the main events we have to watch out for is the Italian 10-year bond auction on Wednesday. Weak results could indicate contagion and trigger another bout of risk aversion, so be sure to tune in!

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Nice try, euro bulls! Just when we thought that the euro might finally catch a break, concerns on Spain dragged the common currency by the end of the day. EUR/USD fell by 45 pips, while EUR/JPY also slipped by 39 pips.

Despite the absence of traders from the U.S., Germany, and France, the U.K. session traders provided plenty of action for the euro.

As it turned out, a report showing the New Democracy, one of Greece’s pro-bailout parties, taking the lead in the opinion polls was enough to energize the euro bulls. Remember that Greece would have higher chances of staying in the euro bloc if they continue their commitment to austerity measures.

Unfortunately for the euro, Spanish bond yields soon took center stage. 10-year government bond yields tipped to 6.5% yesterday, which is only a few notches away from 7%, the level where many of the troubled euro zone countries asked for bailout. Not only that, but the difference between Spanish and German bond yields also climbed to a record high of 515 basis points. Yikes!

No economic reports were released yesterday, but today we’ll see the German import prices at 6:00 am GMT followed by the German preliminary CPI report. Oh, and pay attention to risk appetite, will ya? Something tells me that we haven’t seen the last of Spanish and Greek concerns!

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Pain from Spain! That’s exactly what the euro got yesterday, as it got battered by its major counterparts after a credit rating agency downgraded Spanish debt. EUR/USD slipped below the 1.2500 handle and closed at 1.2499 while EUR/JPY dipped to the 99.00 level.

The euro resumed its selloff yesterday when independent credit rating agency Egan-Jones decided to lower Spain’s bond rating for the third time this May. Aside from cutting Spanish bond ratings from BB- to B, they also put the country on negative watch, which means that another downgrade could be just around the corner. Imagine how much the euro could crash if the major credit rating agencies such as S&P and Moody’s decide to follow suit!

As for recently released economic figures, Germany’s CPI came in weaker than expected at -0.2% instead of the mere 0.1% downtick expected. German import prices also missed expectations as it showed a 0.5% decline, worse than the estimated 0.2% drop.

There are no top-tier economic releases on euro zone’s agenda for today, but you must stay tuned to the Italian bond auction during the London session as well as ECB President Draghi’s speech at 3:30 pm GMT if you’re trading euro pairs. Bear in mind that rising bond yields in Italy could reflect investors’ worries about funding in the region, which could be negative for the euro again. But if the ECB head manages to reassure the markets that they’re on top of the situation, the euro’s losses could be limited. Stay on your toes!

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The Spanish 10-year bond yields hit new highs at 6.7% yesterday, which resulted in wide-reaching case of risk aversion. As a result, EUR/USD continued to plummet into the abyss to mark a new year-to-date low at 1.2361.

News also came out that the European Central Bank (ECB) demanded Spain [B]NOT[/B] to recapitalize Bankia. The bailout plan, according to them, might breach an ECB rule on monetary financing.
Today, we’ve got the German Retail Sales, the German Unemployment Change, and the euro zone CPI Flash Estimate on tap.

The first one is the German Retail Sales report. It will come out at 6:00 am GMT and is expected to show a 0.1% gain. Last month, the German Retail Sales report showed a 1.6% gain (revised up from 0.8%).
After about two hours, at 7:55 pm GMT, the German Unemployment change will be released. It is anticipated to show that the number of unemployed people was reduced by 6,000.

Last on deck is the euro zone CPI Flash Estimate. The market expects euro zone’s inflation rate to taper down to 2.5% from last month’s 2.6%.

Now, these reports normally only have a small impact on market, but with how risk averse the market is recently, weaker-than-expected results could lead to another huge euro sell-off. Be careful!

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If you’re a euro bear and you know it, clap your hands! Euro pairs spent another day in the red as EUR/USD dipped to the 1.2350 minor psychological support while EUR/JPY fell to a new low of 96.52. How long could the euro selloff last?

At first, the euro was able to find relief from the news that the IMF was already cooking up a contingency plan for Spain in case it needs more cash to pay for its ballooning debt. On top of that, Germany reported stronger than expected retail sales, as the report showed a 0.6% increase which was higher than the predicted 0.1% uptick. Now that’s good news considering we haven’t heard any positive updates from the euro zone lately.

However, the selloff soon resumed as traders came to their senses and realized that the overall state of the euro zone hasn’t really changed that much. Several countries are still neck-deep in debt while political pressures continue to haunt Greece. Aside from that, Ireland’s austerity measures are also up in the air as voters are set to decide on the approval of the EU Fiscal Treaty. Bear in mind that if they decide to forego this treaty, austerity measures could be withdrawn and they would be denied access to the ESM fund.

Weaker than expected data from the U.S. also fueled risk aversion in yesterday’s trading as their first quarter GDP was revised down, jobs figures came in below consensus, and the Chicago PMI posted a decline. Check out my U.S. commentary for the rest of the details!

The euro zone is set to release its unemployment rate later today but this isn’t expected to have a huge impact on the euro’s price action, so make sure you keep an eye out for the NFP release and updates on Spain’s debt situation.

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EUR/USD dropped to a fresh 22-month low at 1.2289 against the dollar at the start of the New York session. But before the day was through, it had bounced back sharply to end the day 54 pips higher at 1.2419. Is this the end of the euro’s slide?

What we saw last Friday was a rare sight as you can actually count on one hand the number of times the euro posted gains against the dollar within the last month! With May fully behind us, word on the street is that the ECB may step in to ease market conditions in Europe. This explains why Spanish, Italian, and French government bonds all saw big drops in yields.

Furthermore, a really disappointing jobs report from the U.S. also pushed traders to unload some of their dollar long positions.

Looking ahead, we’ve got the Sentix investor confidence report coming out at 8:30 am GMT today, and survey says we’ll see the index slide from -24.5 to -29.1.

But the must-catch event of the week is undoubtedly the ECB rate announcement on Wednesday. Many believe the central bank may begin hinting about more easing, so this report could be a total firecracker!

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Make that two out of two! The euro extended its gains against the dollar and started the week on the right foot yesterday. EUR/USD dipped to an intraday low of 1.2386 before rallying and closing the day with an 85-pip win at 1.2498.

Meanwhile, against the yen, it ended the day 99 pips above its opening price at 97.95.

But don’t go loco in thinking that all is good in the euro zone hood just yet. According to analysts, the euro’s gains could be nothing more than just traders paring their positions ahead of the G7 meeting today. If market participants feel that there isn’t much consensus among leaders on how to address the debt crisis, we may just see the euro tap fresh lows again. So keep an ear out for updates from the meeting!

Also, be sure to be on your toes for the economic reports we have on tap from the region as they may also affect the currency’s fate in today’s trading.

At 8:00 am GMT, the final version of the services PMI report for May will be released and there are no revisions expected from its previous reading of 46.5.

Come 9:00 am GMT, the retail sales report for the overall region is seen to print a contraction of 0.1% for May and pare part of the 0.3% growth it posted in April.

Then finally at 11:00 pm GMT, data on Germany’s factory orders will be released. It is anticipated at 1.0%.

Better-than-expected figures will probably lend the euro some support, so be sure you keep your eyes peeled for 'em!

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Finally, the big day has arrived - the much-anticipated ECB rate decision is just hours away! Will EUR/USD follow up yesterday’s 44-pip slide with another loss? Or will the pair finally break above 1.2500?

With the ECB rate decision just around the corner, euro traders have been on the edge of their seats. What can we expect from this week’s most important euro zone event?

For one, y’all can expect ECB President Mario Draghi to not beat around the bush and directly discuss the euro zone’s problems. Look for him to tackle the recent string of weak data (PMI reports, retail sales, and confidence measures), Spain’s banking problems, and the recent instability in financial markets, as these are issues that shouldn’t go untouched.

Also, the central bank is supposed to release its inflation and GDP forecasts, which according to my homies, should see downward revisions.

Needless to say, there’s a solid case for more easing from the ECB. But will Draghi and his men pull the trigger?

It’s tough to say right now because they also have good reason to sit on their hands. If they decide to hold off on further stimulus (and postpone it to a later date), they’ll have the benefit of seeing the outcome of the Greek elections. Furthermore, they’ll have more time to wait for action from the G20, as well as time to evaluate Spain’s banking situation.

I don’t think I need to tell y’all not to miss this event. Be ready for it at 11:45 am GMT!

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The euro may have been quiet early on but the bulls sure know how to end the day with a bang! After finding a tough time trading above 1.2500, EUR/USD finally broke higher late in the New York session to finish the day at 1.2578, up 124 pips from its opening price.

Apparently, traders had a delayed reaction to the ECB rate decision and the ECB President Mario Draghi’s speech. As expected, the central bank refrained from cutting rates and kept them steady at 1.00%. Draghi did however, acknowledge weakness in the economy and even hinted that some ECB members may have preferred a rate cut.

Instead, the ECB will be standing pat but ready to act should things continue to worsen. My gut tells me that the central bank is simply waiting to see how the situations in Greece and Spain play out before being more proactive with regards to their economic policy weapons.

As for economic expectations, 2012 GDP forecasts remained unchanged at -0.5% to 0.3%, but 2013 forecasts were revised down from 0% - 2.2% to 0% - 2.0%.

In any case, while the immediate reaction wasn’t to buy the euro, traders realized that this means that the ECB is open to more stimulus down the road, and this allowed to euro to edge higher.

In other news, German industrial production figures failed to impress, as they fell by 2.2% in April, way worse than the expected 0.9% drop. Furthermore, March’s figures were revised down from 2.8% to 2.2%. Yeesh, another sign that the euro zone is entering a cold streak!

For today, we’ve got Spanish and French bond auctions on tap during the London session. I’d pay particular attention to the Spanish version, as this could set the tone for risk sentiment today. If we see yields spike above 6.0%, it could trigger another massive sell-off in the markets. On the other hand, if it seems that demand is strong and yields are low, it could give the euro even more support.

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The euro was uplifted yesterday as China announced that it had decided to cut its benchmark interest rates by 25 basis points. Unfortunately, the move proved to be unsustainable, as Federal Reserve Chairman Ben Bernanke did not affirm the need for further easing in a speech that he made late in the trading day. EUR/USD rose as high as 1.2626 before falling to 1.2565 by the end of the U.S. trading session.

The Spanish bond auction yesterday wasn’t much of a market mover as it pretty much met forecast. Out of the targeted 2 billion EUR, they were able to sell around 2.07 billion EUR. The average interest rate of the bonds sold, however, was high at 6.04%.

Today, euro zone’s docket is pretty light as only the trade balances of Germany (6:00 am GMT) and France (6:45 am GMT) are scheduled to print. Both don’t have a significant impact on the euro’s price action, so don’t hold your breath for them.

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Looks like the weekend couldn’t come at a better time! After posting consistent gains throughout the week, the euro ended Friday on a sour note as it posted losses versus the dollar and the yen. But when I opened my charts earlier today, I saw the euro pairs gap up! What gives?

The major reason why the euro got rocked to end the week is because Fitch decided to slap not a one, not a two, but a THREE notch downgrade on Spanish debt. This put Spanish debt at the lowest possible investment grade status. It wasn’t too surprising though, as rumors of a Spanish bank bailout spooked the markets.

According to Fitch, the Spanish banking sector may need a recapitalization of 60 billion EUR and possibly as much as 100 billion EUR! Yikes! This is as much as THREE times the initial forecast of a 30 billion EUR bailout.

Oddly enough though, euro pairs have gapped up over the weekend, as news broke out that we would see an orderly Spanish bank bailout, even though they have asked for over 100 billion EUR. There is no word yet on whether the funds will be provided from the temporary EFSF or the permanent ESM. I’ll be sure to hook y’all up with more details as soon as possible.

As for economic data, the only report headed our way is French industrial production figures at 6:45 am GMT. Word is that production rose by 0.1%, which would be a decent improvement from the 0.9% decline we saw last month. Still, I don’t see this dictating euro trading for today. Instead, keep an eye out for those gaps and for more news about Spanish bailout woes. Good luck compadres!

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Another day, another set of problems for the euro! Although the shared currency was off to a roaring start as it gapped up against the Greenback and the yen over the weekend, these gaps were quickly filled as the euro slid down the charts the entire day. What went wrong in the euro zone?

Traders didn’t seem to pleased about the news of Spain’s bailout as they worried that another debt saga similar to that of Greece was about to unfold before their eyes. Of course we all know that the Greek debt drama didn’t turn out too well for the euro, as this led to several bailouts, speculation of a Grexit, and talks of a possible euro zone break-up.

It doesn’t help that Spain is euro zone’s third largest economy and a meltdown in their financial system could be much more catastrophic for the entire region.

As for economic reports, France’s industrial production figure came in stronger than expected at 1.5%, beating the consensus of a mere 0.1% uptick. However, this piece of good news obviously wasn’t enough to save the euro in yesterday’s trading.

Up ahead, the coast is pretty much clear for the euro zone when it comes to economic releases for today. Only the French employment data is on tap but this isn’t likely to have a big impact on the euro’s movement anyway. With that said, make sure you keep your eyes and ears peeled for any updates on the euro zone debt situation, particularly that of Spain, to find out how the euro could behave today. Stay on your toes!

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With no economic data out from the euro zone, the euro bears took a chill pill yesterday and took profit on their short euro positions. EUR/USD capped the day with a 22-pip gain, while EUR/JPY also enjoyed a 20-pip lift. Are we looking at a possible reversal, or just a breather?

No economic reports were released from the euro zone yesterday, but word on the streets is that traders are taking profit on their short euro positions ahead of the Greek elections coming up in a few days.

It doesn’t mean that the euro bears are done selling though. For one thing, Spain’s bond yields climbed to a new record high yesterday, which means that the Spanish government might have a harder time paying off its already ridiculously high priced debts. Too bad the bailout lite for Spanish banks wasn’t that much of a help, huh?

Cyprus also made its entrance to the debt drama Cyprus Finance Minister Vassos Shiarly announced that the country has an “exceptionally urgent” need for a bailout. The island’s economy might only be a 60[SUP]th[/SUP] the size of Spain’s, but it limited the shared currency’s gains nonetheless.

Of course, we can’t forget the elephant in the room! While some traders will most likely hold their positions ahead of the Greek elections this weekend, others might be willing to step back to avoid a potentially crazy volatility from the news event. Keep your eyes peeled for possible profit-taking flows!

Meanwhile, economic data junkies will get their fix at 5:30 am GMT when the French CPI report is released, followed by the German CPI data at 6:00 am GMT. In addition, the euro zone’s industrial production report will be printed at 9:00 am GMT. And get this – Germany will have an auction for its 10-year bond yields today!

Stay sharp in your trades, brothas!

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With the euro zone still grappling with problems left and right, it seemed like Mission Impossible for the euro to end the day higher yesterday. But it did. The shared currency pulled off a Tom Cruise in yesterday’s trading and cruised up the charts.

EUR/USD rallied to close the day 67 pips above its opening price at 1.2572. Meanwhile, EUR/JPY ended the day with a 41-pip gain at 99.80.

Spanish bond yields were still at uncomfortably high levels yesterday but at least, they eased from their record highs at 6.8%. On top of that, Italian bond yields were higher at an auction yesterday. 12-month Italian bills rose to almost 4% after being at 2.34% just last month. Word around the forex hood is that the Italian government could already be suffering from the lack of confidence in the sovereignty by investors.

But perhaps the euro caught a lucky break yesterday as talks of QE3 from the Fed grew even more and the disappointing roster of economic data might have given investors a reason not to buy the dollar.

Today, only second-tier reports are scheduled to be released from the euro zone. We kick-start the line up with the ECB monthly bulletin at 8:00 am GMT. Then at 9:00 am GMT, the region’s CPI report for May will be released. The headline inflation figure is seen at 2.4% while the core reading is anticipated at 1.6%.

Aside from those reports, be sure that you also keep an ear out for updates from the region. Pay special attention to news from Greece, Spain, and Italy as the fiscal situations of the three countries seem to be on every investor’s mind right now. Good luck!

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Despite rising European bond yields, the euro remained steady in yesterday’s trading action and actually chalked up another victory versus the dollar. For the first time in nearly 7 weeks, EUR/USD posted its third consecutive gain, rising 38 pips above its opening price to finish at 1.2620.

The euro’s success yesterday was somewhat surprising, as Spanish bond yields rose above 7% as Moody’s recently downgraded Spanish debt to just above junk status. Despite the concerns about Spanish debt, it seems traders are unwilling to put their money on the line ahead of the Greek election, and that’s why the euro was able to stay afloat yesterday.

In other news, the CPI reports came in just as expected, with headline figures printing at 1.6% while core numbers came in at 2.4%. This indicates that for the most part, inflation isn’t out of hand, which could give the ECB the room it needs for a rate cut sometime later this year.

Seeing as how the Greek election is just around the corner, I don’t expect us to see any strong moves in today’s trading. Just watch out for ECB head honcho Mario Draghi’s speech at 6:50 am GMT, as he’ll be speaking at an economic conference. You never know what he might say, so just be careful when he begins his speech!

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The Greek elections are finally over! It seems like the markets are taking the election results well as EUR/USD gapped higher over the weekend and opened at 1.2700 while EUR/JPY kicked the week off at 100.04. How exactly did those elections turn out?

After days and days of waiting, Greece’s New Democracy Party emerged victorious after the elections as they earned the right to start the new coalition government. Recall that this is the more conservative and pro-bailout party, which eased some fears that Greece would be forced to exit the euro zone and default.

However, the winning party still has a lot on its plate since they have only 3 days to get the coalition government up and running. Aside from that, they also have to iron out the budget cuts they need to make before the end of this month in order to comply with the bailout rules. That means the next few days are still bound to be pretty exciting for the euro pairs!

As for economic reports, the coast is clear for the euro zone today as traders could continue to bank on the positive sentiment following the recent Greek elections. Tomorrow, Germany and the euro zone are set to print their ZEW economic sentiment readings for June. PMI figures are set for release on Thursday while the German Ifo business climate figure is due Friday.

It’s bound to be action-packed week for the euro so make sure you plan your trades well and set those stops right! Good luck!

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It has only been one day since the conclusion of the Greek elections but traders have found a reason to sell EUR/USD again! Yesterday, spotlight shifted to Spain as yields for the country’s 10-year bonds rose above very significant 7% handle. EUR/USD, as a result, ended the U.S. trading session with a 123-pip loss at 1.2577.

Even though the victory of the pro-bailout party re-election in Greece was able to support EUR/USD early on, the gains were only temporary. The market’s focus has moved to the other problem child of the region: Spain.

There were no important news releases yesterday but today the ZEW Economic Sentiment survey for Germany and the entire euro zone will be released. The one for Germany is expected to print a reading of 3.8% while the one of the entire euro zone is slated to show a -5.7 reading. The forecast for both surveys are worse than the readings from the previous month.

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Who’s the loser now? Despite weak economic reports from the euro zone, the common currency was able to step ahead of its counterparts yesterday. EUR/USD rose by 107 pips, and EUR/JPY clocked in a 68-pip gain. What the heck boosted the euro?

Not the region’s economic data, that’s for sure. Germany’s ZEW economic sentiment, a gauge of morale on the economy, fell to its lowest level since 1998 at -16.9. Meanwhile, the region’s ZEW data also plunged to -20.1 when analysts were only expecting a -5.7 figure.

Spain’s bond auction wasn’t any help either. Though the government was able to raise a bit more than its 3 billion EUR target, it had to promise much higher yields on its 12 and 18-month bills. Yields on the 12-month bills soared from 2.98% to 5.07%, while the 18-month bills will be paid at 5.10% vs. 3.3%.

Fortunately for the euro, investors are optimistic on the latest G20 meetings. No official announcement has been made just yet, but many believe that the leaders would come up with a couple of resolutions that would keep the crisis at bay.

Of course, it didn’t hurt that rumors of Angela Merkel softening her stance on using the EFSF and the ESM to directly buy peripheral bonds circulated in markets. Not only that, but a couple of analysts even interpreted that the significantly weak ZEW reports would spur the ECB to action. Talk about seeing the silver lining!

Will the data from the region reinforce the market players’ optimism? Only the German PPI data at 6:00 am GMT is scheduled for release today, but that doesn’t mean you shouldn’t keep your eyes glued to the tube! For one thing, you should watch statements from the G20 leaders!

Keep your head in the game, kids!