Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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Euro bulls finally took a breather last Friday as the EURUSD pair posted some minor losses when investors took profits off the table. The pair opened Asia at 1.4733 and ended the week at 1.4703.

Data last Friday was euro positive. The German producer price index, for August which was only expected to show a 0.1% increase, printed a reading a 0.5% increase. This was the first month-on-month gain since October last year adding more evidence that the global economy is on its way to recovery. Euro zone�s current account for the same month also posted surprising figures as it revealed a 6.6 billion euro surplus instead of the 4.3 billion deficit forecast. This was the first positive balance since April 2008.

Looking ahead the week, euro zone�s economic calendar has some medium and high impact data that could provide some volatility for investors.

On Wednesday, expect to see the estimates on the manufacturing and services purchasing managers� index. Investors pay attention to the report as euro zone�s manufacturing industry makes up a huge chunk of its economy. The PMI asks purchasing managers whether the manufacturing and services industries are expanding or contracting. A reading above 50.0 means the industry is expanding.

The highlight of the week will be the September German Ifo Business Climate report on Thursday. The report attempts to determine the overall direction of the economy by asking businesses to rate the current and expected level of businesses conditions in the future. Economists predict it to rise to 92.1 from 90.5 the month prior.

If these reports come out better-than-forecast, we might see the EUR continue to make new highs against the USD.

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The Euro stumbled around yesterday before finally sobering up midway through the US session. The EURUSD closed slightly lower, at 1.4676 after hitting as low as 1.4611. The EUR did however, continue to smack around the GBP, rising to a 5 month high at .9055.

Another relatively quiet day for the Euro zone today, with no high impact reports on deck. I�d be on the lookout for news coming out from the stock markets - changes in risk sentiment may spill over onto our side of the markets and cause some splashes.

Tomorrow, we may see more volatility as a slew of economic data will be released. Starting at 7:00 am GMT, French, German and Euro zone manufacturing and services PMI will be released, with all of the indexes expected to show improvements from the previous month. Also, French consumer spending and industrial new orders data will be released. With all this data on deck, coupled with the FOMC statement from the US side, we could see some developments in the market. Stay tuned!

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After its two-day hiatus from the economic calendar, the euro zone makes a big comeback as it unloads a truckload of economic reports today. Gear up lads, price action could be pretty wild today!

The EURUSD is no stranger to wild price action, especially since it staged a strong rally and reached a new yearly high yesterday. As it edges closer to the 1.5000 mark, the EURUSD continues to be boosted by risk appetite while finding support from the ECB’s indifference to EUR strength. ECB member Axel Weber commented that the rising EUR is not out of line with euro zone data and that the central bank is in no rush to hike up rates because the strength of the EUR tightens the economy.

Well, today we’ll see how the member economies of the euro zone are faring. The two euro zone giants, France and Germany, are set to release their respective manufacturing and services PMI’s at 7:00 am GMT. All PMI’s are expected to record improvements and keep their footing stable above the 50.0 expansion mark. France will also be releasing its consumer spending data a few minutes earlier.

Later on, industrial new orders data from the entire euro zone is due at 9:00 am GMT. A 2.1% uptick is projected to follow the previous 3.1% rise in industrial new orders. Lastly, Belgium will report its NBB business climate by 1:00 pm GMT. The reading is predicted to climb up a couple of notches from -18.2 to -16.2. If data from the euro zone meets or beats expectations, then the EURUSD could reach another new yearly high. More so, if risk appetite continues to dominate in the markets, we might find the EURUSD inching closer to the 1.5000 level…

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The EUR came in to disappoint yesterday as it slumped against both the greenback and the yen. The EURUSD actually hit a new high at 1.4843, before the USD rallied late in the US session, causing the pair to close significantly lower at 1.4742.

There were several issues that were released in the euro zone yesterday: French consumer spending, France, Germany and the euro zone�s flash manufacturing and services PMI, and the euro zone�s industrial orders. The mentioned accounts posted mixed results with only the French PMI and euro zone�s industrial orders registering gains. Despite the declines in some of the figures, the EUR�s movement remained muted ahead of the FOMC statement.

Meanwhile, yesterday�s FOMC statement indicated that the US economy has indeed recovered, albeit not fully, from its worse post WWII recession. Nevertheless, the FOMC still plans to purchase $1.25 trillion worth of agency mortgage backed securities and $200 billion agency debt in order to support the economy�s recovery. Though, it said that it will do so in a much slower pace compared to what was initially expected. The USD and the JPY rallied vis-�-vis the EUR to its best level in the session following the report.

Germany�s IFO business confidence survey is due later at 8:00 am GMT. The index is seen to rise to 92.1 from 90.5. If ever, the score of 92 would be its highest score since September of last year. Such an increase would indicate that Germany, which is the euro zone�s largest economy, is set to grow further after it pulled itself out last quarter from the global recession. Any increase in the figure would give the EUR a much needed lift given its decline yesterday.

67

Just like my good friend Big Pippin said in his daily chart art, the euro took another hit from the dollar yesterday as it fell more than 150 pips during the US afternoon session. Whether the move a major bearish correction or the start of a new trend remains a question needing an answer.

The September German Ifo business climate survey wasn�t much of a help to the euro as it printed a reading of 91.3, lower than the 92.1 forecast. Still, the euro managed to hold on since it was an improvement from the month prior�s 90.5. It is also at its highest level in twelve months.

The prime cause of the decline in the euro�s value was attributed to the poor numbers on existing home sales. The report, which measures the annualized number of previously owned homes sold, came out worse than expected as it printed a reading of 5.10 million. This gave risk aversion a chance to drop by in again unexpected, pushing the euro and equities lower.

Today, some minor impact economic reports are due for euro zone. Some minor impact economic reports are on the menu today for euro zone.

First up is the Gfk German consumer climate for September at 6 am GMT. The consumer climate report attempts to predict the direction of the economy by asking consumers on their sentiment towards the economy. The consensus is for the reading to improve this month, from 3.7 to 3.9.

There�s also euro zone�s M3 money supply y/y for August at 8 am GMT. The supply of money in circulation is expected to have risen by 2.7%.

We�re heading to the weekend and it�s time for traders to close shop again. Will we see some profit taking like last week or will the dollar rally persist? We�ll just have to wait and see!

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The euro was able to avoid further losses against the USD on Friday, as there was a lot of up and down trading. The EURUSD finished slightly higher, closing at 1.4670 � just 13 pips above it�s opening. After setting a new yearly high last week, what�s in store this week?

The German Gfk consumer confidence report released on Friday indicated that Germans are feeling more optimistic towards the economy. The report had a reading of 4.3, an increase from a revised score of 3.8 in August. Still, consumers are wary over the state of unemployment, an issue that will have a large impact on consumer confidence in the coming months.

Other data released indicated that lending conditions remain to be weak in the Euro zone. Lending in the private sector barely grew, rising just 0.1% in July. Another report showed that money supply rose just 2.5% in August, less than forecast of a 3.0% increase. If lending and money supply continue to show signs of weakness, then you know what this means � consumer demand is sure to follow! And if the economy is still stuck in a rut, what does that mean? You guessed it � more economic stimulus! Of course, this could just be a one-month anomaly� Still, let�s see what this leads to as we enter the last quarter of the year.

Today, we could be in for a couple of surprises, as ECB President Jean Claude Trichet will be speaking before the European Parliament�s Committee on Economic and Monetary Affairs. He will be speaking at 2:30 pm GMT. Naturally, as president of the ECB, his words have bearing on the markets. So, be careful trading as we just don�t know what he will be talking about!

Also due anytime today is the German preliminary CPI m/m report. It is expected that German inflation fell by 0.2% in the past month. If this figure comes out worse than expected, it could spark fears of deflation, which could be bad news for the Euro.

Not much high impact news for the rest of the week. Just be on the lookout on Wednesday, when CPI and German unemployment data are due. Also, on Thursday, the Euro zone unemployment rate and German retail sales reports will be released.

Lastly, I�d keep an eye on GBP trading. The pound has been dropping as of late � the euro could stand to benefit from it�s weakness as investors and traders look for alternatives to invest in.

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The EUR fell sharply yesterday as ECB President Trichet said that he supports a strong USD policy. This triggered a strong USD rally, causing the EURUSD to fall from a high of 1.4720 to a low of 1.4565 during the Asian session. It attempted to get back on its feet during the European session but it was unable to do so.

Trichet also expressed his concerns about the economic crisis being far from over, implying that the central bank is not ready to withdraw their stimulus policies just yet. Yesterday’s economic data from Germany confirms that both the domestic and global economy is still in a rut. Price levels in the largest Euro zone economy fell by 0.4% year-on-year this month after rising by a mere 0.1% in August. The drop in CPI was mainly attributed to the decline in oil prices, which were down by 32% from last year. Also, the slump in global demand continues to dampen consumer spending, forcing manufacturers and retailers to lower their prices to stimulate sales.

Let’s see what the consumers think about the state of the euro zone economy as we take a look at the consumer confidence index due at 9:00 am GMT today. The reading is expected to step up from -22 to -21 in September. Other than that, no other economic indicators are set for release from the euro zone today. With that, I suspect that the EURUSD will continue to be affected by Trichet’s pro-USD comments but we’ll just have to wait and see…

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The EUR closed mixed against the two �safe haven� currencies � JPY and USD - in yesterday�s trading. The yuppy (EURJPY) rallied to close at 131.46 after marking its 3-month low at 129.82 the other day. The fiber (EURUSD), on the other hand, continued to slide. It closed at 1.4573 from an opening of 1.4606.

Euro zone�s economic confidence improved to -19 in September from -22. It was only seen to come in at -22. The latest score marks it highest level in 12 months as the economy shows signs of emerging from its deepest slump since the 1930s. Despite the better-than-expected consumer confidence result, the fiber continued to lose some pips.

The German unemployment change and the euro zone�s annualized flash CPI estimate will be released later today. About 19,000 more people are estimated to have been unemployed in Germany during the previous month. Meanwhile, the euro zone�s y/y flash CPI is seen to remain at -0.2%, which is well below the ECB�s 2% inflation target. A weak German labor market plus deflating prices do not reflect well on the euro zone�s economy. It goes to show that the euro zone, in spite of its recent positive economic developments, is not yet out of the woods. This is one of the main reasons why ECB President Trichet is lobbying for a stronger USD as such would buoy the economy�s export industry.

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After losing almost every single day against the dollar this week, the euro finally found some legs in yesterday�s trading session. The euro�s victory was shaky though as bears tried to push the currency lower on account of poor results on the ADP report. At the end of the day, the euro�s losses proved to be short-lived as it was able to bounce back once the initial selling frenzy died down.

As for economic data, the September German unemployment change that measures the number of people who lost jobs printed surprising figures. It showed that 12,000 jobs were actually created, opposite the 19,000 jobs lost expected. This bumped down the country�s jobless rate to 8.2% from 8.3% the month prior.

In other news, the CPI estimate for September came out with a -0.3%, slightly worse than the -0.2% forecast, indicating that euro zone prices are still falling. This was the fourth straight month that inflation in euro zone has been negative. The falling prices, experts said, were mainly due to the sharp drop in food and oil prices. Despite this, they said not to put too much meaning on the poor figures as inflation would probably pick up and normalize on November.

The economic reports to watch out today would Germany�s report on retail sales at 6 am GMT and euro zone�s unemployment rate at 9 am GMT. The forecast is that Germany�s retail sales remained flat between July and August while euro zone�s unemployment rate edged up to 9.6% from 9.5% the month prior. If these reports show better-than-expected figures, we might see the euro rally versus the dollar again today.

However, take note that the NFP report is due for release tomorrow. This is a big deal among traders and because of this, we might see some side wards price action and muted liquidity today as investors sit on the side lines prior the release.

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The euro struck out when looking for a dancing partner in yesterday�s trading session. The EUR was rejected by the USD, JPY and GBP, and found itself alone in the corner.

Euro trading wasn�t helped by economic news released during the day, as reports indicated that Euro zone unemployment has risen and that German retail sales figures were worse than expected.

Euro zone unemployment now stands at 9.6%, bringing the total number of people without work to 15.17 million. As I keep saying, it isn�t only the US labor markets that are weak � it�s everywhere! As long as this keeps up, I suspect that hope for recovery could dim�

German retail sales fell by 1.5% from July to August. This was a surprise, as it was expected that sales would remain steady for the month. But now that I think about it� other recent data (like German PMI) came out worse than expected� Could Germany slow down in the coming months, after it has posted some growth during the 2nd quarter? Just something to keep note of�

No high impact news coming out from the Euro zone today. I�d be on the lookout during the US session though, with the NFP report coming out. Watch out for some wild swings following the release.

73

The EUR pumped some iron last Friday and flexed its muscles against the safe-havens USD and JPY after the disappointing NFP report. Will the EUR continue to show strength as it faces an entire week filled with high-impact economic reports?

The first indicator for this week is the Sentix investor confidence report, which is projected to budge from -14.6 to -12.0. This index has been improving for the past three months and is expected to show a smaller degree of pessimism this October. The actual figure is due 8:30 am GMT today.

The main event on euro zone’s agenda for today is the retail sales report. After coming short of expectations for the past few months, sales at the retail level are expected to print another decline for August. If the actual figure, which is due 9:00 am GMT, comes below the consensus of -0.4% then the EUR could wind up getting hurt again.

On Tuesday, the only report due is the French government budget balance, which should have a minimal impact on the EUR price action. Come Wednesday we’ll see the final GDP reading and data on German factory orders. Recall that the euro zone economy shrank by 0.1% in the second quarter but we’re still waiting to see whether this figure will be revised. If we see an upside surprise showing positive economic growth in the euro zone, then the EUR could rally. Otherwise, if a downward revision is made, then the EUR could edge even lower… Meanwhile, factory orders in Germany are expected to post a slightly moderated uptick of 1.2% for August.

Heads up for Thursday’s ECB minimum bid rate announcement and monetary policy statement! Trichet and his boys are expected to leave rates at 1% while keeping their conservative quantitative easing policy unchanged. But given the recent economic reports showing notable improvements in the region, ECB officials could be airing out some bullish comments regarding their economy. Also due on Thursday is Germany’s industrial production data which is predicted to post a 1.6% uptick in August.

Moving along to Friday… Germany will be releasing its final CPI and trade balance data while France and Italy have their industrial production data on tap. Also, Trichet is scheduled to deliver a speech later that day… Would we hear him renew his pro-USD stance and thus pummel the EUR? Who knows?! This week looks like a pretty exciting one for the EUR!

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The EUR took advantage of the dollar’s weakness in yesterday’s trading and closed at 0.56% higher at 1.4651. The fiber’s price went downhill from 1.4650 to 1.4600 during the euro session. It was only able to move forward when the US market opened.

The euro zone’s retail sales for the month of August contracted again by 0.2% after already declining by the same rate during the month prior. The drop in retail sales may add to the reasons why the ECB could leave its overnight cash rate at its current low levels in its decision this week. Though, the account came out better than expected, it was not enough to give boost to the EUR.

The return of risk appetite in the US capitals, led by the financial sector and the CRB index caused a broad base dollar weakness which consequently benefit the other “anti-dollars” like the EUR.

No economic reports are due today in the euro zone. The EUR might just find some leads from the other currencies regarding its short term direction.

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Risk appetite came knockin’ at the market’s door early during Asia yesterday, giving the euro a chance to make some significant headway against the dollar. The EUR/USD pair traded as high as 1.4763, more than 100 pips from its Asian open, before eventually closing the US session at 1.4716.

No important economic data released yesterday but expect to see euro zone’s final GDP figure and German factory orders today at 9 am and 10 am GMT respectively.

The final GDP would probably confirm that euro zone’s economy during the second quarter of 2009 shrank by 0.1%. Meanwhile, the forecast on German factory orders is an increase of 1.3% in August. If the final GDP posts growth or German factory orders come up with a higher number, we might see more risk taking in the markets. This could take EUR/USD pair higher again.

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The EUR traded lower against the USD yesterday, after the pair traded in a relatively tight range. The pair traded within a range of 87 pips, and ultimately closed lower at 1.4679. Could traders be gearing up for earnings reports due at the end of the week?

The euro zone contracted more than initially recorded in the 2nd quarter, as a revision printed a 0.2% decline in GDP. The initial report showed a 0.1% contraction. The revised results did yield some positive news, pointing out that other euro zone members like Greece, Portugal and the Czech Republic all posted growth during the quarter. Take note that in the initial report, only France and Germany were seen to have grown. With other countries seeming to pick up the slack, the euro zone is showing some signs of a real recovery - will the Euro zone post growth as a whole in the third quarter?

Germany factory orders were also released yesterday, showing an 1.4% rise in orders for the month of August. This slightly more than the forecasted 1.3% figure. Hmmm… if orders are rising, could this be evidence that things are continuing to pick during the third quarter? Just throwing something out there for you to think about…

After all the slow movement we saw in today’s trading, we could be in for a some major noise, as the ECB will be releasing its interest rate decision at 12:30 pm GMT today. Earlier this week, we saw the RBA raise their rates. Despite this, many still believe that the ECB will hold rates for now. Take note, unlike Australia, the euro zone did not escape a technical recession. Also, ECB President Jean Claude Trichet said that recovery will be bumpy and that we should still remain cautious. That being said, I’d be on the lookout for any surprise statements made by ECB officials.

Also being released tomorrow is German industrial production data at 10:00 am GMT. This will be followed by the French and Italian versions tomorrow at 6:45 am and 8:00 am GMT respectively.

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The EURUSD seemed to be confused about which direction to take based on ECB President Trichet’s comments. The ECB left rates unchanged at 1% as expected but what caused the up-and-down movement in the EURUSD was the ECB press conference held a few hours after the rate statement.

On the one hand, Trichet gave a relatively upbeat assessment of the euro zone economy, suggesting that the ECB may implement an exit strategy before the Fed does. He pointed out that there are plenty of signs of stabilization in their economy and that the growth in exports would be a major factor in the recovery. On the other hand, when asked about his stance on the EUR and USD, Trichet emphasized his support for the strong USD policy… and these words were enough to cut the EUR rally short.

Plenty of reports are due from the euro zone today so the EUR could have a bunch of opportunities to recover yesterday’s losses. Germany is set to report its trade balance and final CPI at 6:00 am GMT. No revisions are expected for their final CPI of -0.4% while their trade surplus of 12.4 billion should stay the same for another month. France will be releasing industrial production data later on and a 0.3% uptick is projected. Come 8:00 am GMT, Italy will release its own industrial production data.

Trichet is scheduled to make a speech again today and who knows whether we’ll see another roller coaster price action in the EURUSD charts. He could echo his statements from yesterday, highlighting the improvements in the euro zone but at the same time reiterating his pro-USD stance. Watch out for that around 9:30 am GMT!

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The EUR fell against the USD last Friday as it encountered some resistance at the 1.4800 region. With several high-profile earnings releases in the US this week, the fiber could finally break the mentioned price barrier.

Several reports were published in the euro zone last Friday. Though, none of them really acted as a fundamental catalyst for the EUR. As expected, Germany’s m/m final CPI stayed at -0.4%. Its trade balance, however, fell to €10.6 billion from €12.5 billion. Meanwhile, France’s industrial production rose by 1.8% (0.3% consensus) while Italy’s own account leaped by 7.0% against expectations of only a 1.1% gain.

This week, action will start on Tuesday (October 13) with the publication of Germany and euro zone’s Zew economic sentiment survey results. Germany’s account is seen to reach 58.8 from 57.7 while the euro zone’s broader index is projected to rise as well to 60.1 from 59.6.

Next up will be the release of the euro zone’s industrial production on October 14. Production is projected to gain by 0.9% after losing by 0.3% in the month prior.

The estimated uptick in the mentioned accounts could give some short term support to the EUR.

On October 15, the ECB will issue its monthly bulletin. The euro zone’s inflation figures will also be printed. Euro zone’s annualized CPI is anticipated to have remained at -0.3% which holds the economy under a deflationary environment. Consumer spending will not able to gain momentum if prices continue to fall. Such could be a detriment to the growth of the euro zone’s economy and could cap the EUR’s rise if ever.

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The euro began the week on a strong note as it rallied towards the 1.4800 price level against the dollar yesterday. The EUR/USD initially fell during early in Asia when investors took profits of their short dollar positions but eventually gained some upward momentum when risk appetite picked up during the European session.

The report to watch out for today is the German ZEW economic sentiment survey at 9:00 am GMT. The consensus is a reading of 58.7, a slight uptick from the 57.7 figure in September. The report tries to assess the economy’s direction for the next six months using a positive/negative scale. A reading above baseline zero means that investors and analysts are optimistic about the economy.

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The euro continued to make mince meat out of the USD, as it hit a near yearly high at 1.4876. The EURUSD pair did however, give up some of its gains and closed at 1.4828. The question is, with all the economic data coming out this week, can the pair stay above the 1.4800 handle?

Interestingly, the euro was able to overcome the results of the German and euro zone ZEW economic sentiment reports. Both surveys did not meet expectations, printing readings of 56.0 and 56.9 respectively. This was also a dip from last month’s release, when the reports had scores of 57.7 and 59.6. Some suggest that confidence will remain subdued over the mean time, although this is no reason to panic.

Later today, industrial production figures will be available at 9:00 am GMT. Production is expected to have grew by 0.9% in August, after it had declined by 0.3% in July. Could a negative to positive figure boost the euro even higher?

We could be in for a rocky couple of days, as the ECB monthly bulletin and inflation data will be released tomorrow. Also, I’ll be listening closely to ECB President Jean Claude Trichet’s speech at 11:25 am GMT. His speech is entitled “Lessons from the Crisis,” so let’s see what he has to say about it.

Lastly, we’ve got some big time US companies releasing their earnings reports starting today. Be on the lookout for any surprises coming out form these reports.

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Chalking up another yearly high was the EURUSD, which was boosted by a surge in risk appetite and an increase in euro zone industrial production. Also, the ECB has been relatively more hawkish than the Federal Reserve, thus allowing the EUR to rake in more brownie points.

Industrial production in the euro zone rose for the fourth time in August as it came in line with the consensus of a 0.9% uptick. This was a larger increase than that of July, when it printed a 0.2% rise in industrial production. On an annual basis, industrial production fell by 15.4% in August, its slowest year-over-year drop in 18 months. A signal that the euro zone is gradually climbing its way out of the recession, perhaps?

The EURUSD was also able to benefit from yesterday’s US retail sales report, which showed that consumer spending slowed less than expected. This caused a run of risk tolerance, leading to a USD sell-off. More USD selling was brought about by the minutes of the FOMC meeting, which implied that the Fed is still miles away from exiting their stimulus policies.

Traders are watching out for today’s inflation report from the euro zone. This report, which is due 9:00 am GMT, could show that price levels are down by 0.3% on a year-over-year basis. Aside from that, ECB President Trichet is scheduled to deliver a speech at 11:25 am GMT. Would he emphasize his concerns against the rising EUR again? If he does, then the EURUSD could return its gains from yesterday.

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The EURUSD pair recorded a fresh yearly high yesterday at 1.4967 before closing at 1.4936. Though, the pair corrected for awhile to its 38.2% Fibonacci retracement level during the start of yesterday’s euro session. Nonetheless, the pair is now on track again in possibly marking yet another yearly high.

The ECB presented to the public its monthly economic report. In the report, ECB Governing Council Member Erkki Liikanen suggested that the bottom of the global slump has already been reached. He mentioned as well that the bank’s present stimulus still applies and that he sees no need to change current policies as of the moment.

Meanwhile, euro zone’s CPI figures were also published. Both core and headline year-over-year accounts came in line with expectations at 1.2% and -0.3%, respectively. Euro zone’s annualized inflation has been declining for four consecutive months now due to mainly to a lower energy and food costs compared to July of last year.

The EUR slid against the USD following the release.

On a separate report, ECB President Jean-Claude Trichet was lobbying to the US finance officials for a stronger dollar. He reasoned that “excessive volatility” in the currency markets is making it difficult for the other economies to achieve stability. Presently, the appreciating euro is putting a drag on Europe’s recovery by making exports more costly.

The EUR continued to correct versus the greenback after his speech.

No top tier economic reports are due today in the euro zone. Currently, the EURUSD is trading near its yearly high. It could move above it if risk appetite remains. In the US, GE will release its third quarter earnings. Encouraging numbers could once again spark a broad based buying of higher yielding assets.