Daily Economic Commentary: Euro zone

Trading Discussion News and Economy
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Despite euro zone’s stronger than expected industrial production reading, the EUR weakened against the USD yesterday. It seems like the EUR was upset about the ECB’s rate decision, causing the EURUSD pair to fall to a low of 1.4447.

Let’s start with the good news. Euro zone industrial production grew 1% in November, rebounding from the 0.3% decline in the previous month. Although the reading for November beat the consensus of a 0.6% increase, industrial production was still down by a whopping 7.1% on a year-over-year basis.

In the ECB rate statement, ECB President Trichet expressed his reluctance to hike rates, saying that the current level of interest rates is appropriate. He pointed out that growth has been uneven and that inflation has been low, implying that the central bank would stay cautious with their monetary policy. Aside from that, Trichet also remarked on Greece’s debt concerns, saying that the central bank wouldn’t give the ailing nation any special treatment despite their weak financial condition.

Later on, the release of weaker than expected US retail sales dragged the USD lower, consequently providing a tiny boost for the EURUSD pair. As US retail sales shrank by 0.3% and core retail sales dropped by 0.2%, traders speculated that it will take a long while before the Fed hikes rates, thus dampening demand for US dollars.

The euro zone will release its inflation data today 10:00 am GMT. The annualized CPI reading for December is estimated to be 0.9%, same as in November. Meanwhile, the core CPI is projected to rise by 1% in December. Also due 10:00 am GMT today is euro zone’s trade balance, which is expected to show that the surplus narrowed from 6.3 billion EUR to 5.4 billion EUR.

Keep an eye out for US economic data, namely their CPI, Empire State manufacturing index, and University of Michigan consumer sentiment index. Weaker than expected data could provide support for the EURUSD pair. That’s it for this week! Good luck trading!

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The euro slid against the dollar due to concerns regarding Greece’s ballooning budget deficit. The EURUSD finally broke below the 1.4450 handle and settled at 1.4380 to end the week.

Euro zone’s annualized headline CPI came in line with expectations at 0.9% in December. Still, this figure is way below the ECB’s 2% inflation target. Some ECB officials have expressed that inflation in the euro zone will continue to be soft in the coming months. Meanwhile, the core figure, which excludes food and energy prices, rose to 1.1%, slightly over the 1.0% consensus. Despite the better than expected core account, the EUR remained weak versus the dollar.

On a separate report, euro zone’s trade balance surplus suddenly narrowed to € 3.9 billion from €4.7 billion (negatively revised from €6.3 billion). The consensus was for it to reach €5.4 billion in November. The culprit appeared to be the 0.4% drop in the euro zone’s exports due to the euro’s strength. Note that the euro has gained about 10% versus the dollar over the past year.

The week will kick off with the release of Germany and euro zone’s ZEW economic sentiment survey tomorrow (January 19). German sentiment is seen to cool off to 49.9 in January from 50.4 while the euro zone’s account is projected to increase slightly to 48.2 from 48.0.

On January 20, Germany’s PPI for the month of December will be released. The price of goods and services sold by manufacturers is expected to have climbed to 0.2% from 0.1%. With Germany making about a third of the entire euro zone output, an increase in this account could lead to an uptick in the zone’s inflation.

On January 21, flash manufacturing and services PMI for the euro zone, France, and Germany will be published. All accounts are seen to log in some gains in January.

The week will be concluded with the euro zone’s industrial orders report for the month of November on January 22. Orders in November probably rose 0.6% after declining by 2.2% in the month prior. The euro could regain some of its vigor of the estimate happens to hold true.

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After losing terribly last Friday, the EURUSD managed to bounce back and erase some of its losses in yesterday’s trading session. Still, the upward move was less than convincing and could only serve as another chance for EURUSD bears to sell the pair at a more expensive price.

No important economic data released yesterday but expect to see the German ZEW economic sentiment survey later at 10:00 am GMT.

The German ZEW Economic survey is designed to see whether investors, economists and analysts are optimistic or pessimistic about current and future economic conditions. A reading above baseline zero indicates that the optimists outnumber the pessimists while a reading below zero means otherwise. The forecast for January is reading of 49.8, down from the 50.4 seen last December. If this holds, it would mark the fourth consecutive month of decline, showing that the respondents are getting less and less optimistic about Germany’s economic outlook.

Also keep an eye out for any talk about Greece’s debt problem. News on Greece’s debt has more or less dictated the EURUSD’s price action in the past couple of days and more bad news could provide more fuel for another round of EURUSD selling.

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Sacrebleu! The euro got whipped in yesterdays trading session as it was hurt by poor economic data that was released. The EURUSD fell 80 pips to close the day at 1.4302.

The euro zone got hit by some bad news as the German ZEW economic expectations report came in worse than expected. The index had a score of 47.2, but was expected to post a reading of 49.8 As my buddy Forex Gump pointed out in his recent blog post, it appears that investor confidence has been on sliding the past few months. European investors are probably concerned about the debt concerns over in Greece as well as a slow down in the economic recovery. If this continues, look for the euro to continue to experience some weakness.

Today could provide less volatility during the European session as only the German producer price index will be released at 7:00 am GMT. Prices of manufacturing goods are expected to have increased by just 0.2% last month.

We could be in line for more fireworks tomorrow, as German and French manufacturing and services PMI reports will be released throughout the day. Take note that our buddies over at Germany and France have the biggest economies in the euro zone, so traders follow developments in their economies.

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US dollar bulls were on a rampage yesterday, pushing the EURUSD to a low of 1.4107. The EUR was unable to put up a fight since it was weighed down by Greece’s credit woes and weaker than expected German PPI.

Producer prices in Germany slid by 0.1% in December, instead of rising by 0.2% as expected. This shows that inflationary pressures in euro zone’s largest economy remain subdued, putting absolutely no pressure on the ECB to hike rates soon. This disappointed plenty of EUR bulls, who expected that the ECB would raise rates ahead of the US Fed.

Aside from that, Greece’s deteriorating credit condition forced the yields of Greek bonds to rise considerably. Since the country’s bonds are now more expensive, they will find it more difficult to secure funds to finance their debt. Although some IMF officials remarked that Greece’s concerns would not lead to a break-up of the euro zone, investors remained doubtful that Greece would be able to find a fix for its problems soon.

Today, the euro zone is set to release a bunch of PMI data. Hopefully, these indicators could provide some support for the EUR. France will release its services and manufacturing PMI at 8:00 am GMT and is expected to print improvements for both indicators. Next, Germany will release its own set of services and manufacturing PMI at 8:30 am GMT. German manufacturing PMI is projected to climb from 52.7 to 53.0 while services PMI is expected to rise from 52.7 to 53.1. For the entire euro zone, their manufacturing and services PMI are due 9:00 am GMT.

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The euro sustained another big loss yesterday against the yen. The EURJPY pair fell and settled at 127.42 after reaching a high of 129.49.

France’s, Germany’s, and the euro zone’s flash manufacturing and services PMI were issued yesterday. The French manufacturing PMI remained the same at 54.7 in January while its services counterpart dropped to 57.0 from 58.7. Both accounts are below the market’s consensus. Germany’s manufacturing PMI inched higher to 53.4 from 52.7 but its services index slid slightly to 51.2 from 52.7. Euro zone’s version of the manufacturing scale reached 52.0 from 51.6 though its services index, like the others, also fell to 52.3 from 53.6.

The euro just ranged following the mixed PMI data. During the US session, news that China will tighten its monetary policies came out after it posted a 10.7% expansion during the fourth quarter of 2009. Optimism in the markets was tempered which resulted to investors fleeing back to the safety of the yen.

Data on euro zone’s industrial orders in November is due later at 10:00 am GMT. Orders are seen to have gained by 0.6% after falling by 2.2% during the month prior. This expected increase in the index could somewhat halt the euro from declining further.

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The lack of economic data from euro zone last Friday kept the euro range bound against most major currencies yesterday. There was a slight bias on buying though, as the bears took profit from the euro’s recent drop in value.

The euro was also able to gather support from the better-than-expected New Industrial Orders report. It showed that the total value of new orders received by manufacturers surprisingly rose by 1.6% in November, almost three times the expected increase of 0.6%. October’s figure was revised to -1.9%, an improvement from the initial reading of -2.2%. The report revealed that the pick-up in orders was primarily due to increased demand for consumer goods.

On a broader scale, however, not much could be said about the desirability of the euro. The underlying euro zone fundamentals remain weak, capping any kind of euro buying.

On deck today is the Gfk German Consumer Climate survey at 5:00 am GMT. The survey gauges how confident consumers about their financial situation and their sentiment towards the economy. A rising reading means that consumers are getting more positive about their situation while a falling reading means otherwise. The expectation is a reading of 3.2 this January, down from the 3.3 reading seen last month.

Looking further ahead the week, the only high-profile economic report coming out of euro zone is the German Ifo Business Climate survey. The survey is a way to see how manufacturers, wholesalers and retailers view Germany’s business environment. A rising reading usually indicates growing optimism and could signal a pick-up in economic activity in the future. The consensus is a reading 95.2 for this month, an improvement from the 94.7 reading seen in December. Await the actual results on Jan. 26, 9:00 am GMT.

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Yawnnnn… Pretty boring day in the markets,as there just weren’t any catalysts to cause a major move in the market. The EURUSD pair stayed within a tight range of 67 pips and closed at 1.4154.

Today should be busier for the euro zone, as some economic reports are scheduled for release.

First, we’ve got French consumer spending data at 7:45 am GMT. It is expected that consumer spending rose by 0.7% last December. This should come as no surprise – it was the holiday season and people are expected to open up their wallets just a little bit.

Later on at 9:00 am GMT, the German Ifo Business Climate index is due. The index measures what manufacturers, retailers, builders and wholesalers feel towards the economy. It is expected to show an improvement from last month’s score of 94.7 to 95.2. However, just last week the ZEW economic sentiment surveys came in worse than expected. Could we be in for a surprise in today’s report?

Lastly, the euro zone current account will also be available at 9:00 am GMT. The data is expected to show a deficit of just €3.1 billion during December, an improvement from November’s figure of €4.6 billion. Take note that the euro dropped in December because of the strong dollar rally to end 2009. This could have effectively helped exports, as a weaker local currency makes the prices of their goods effectively cheaper.

As for tomorrow, we’ve got inflation data on deck as the preliminary German consumer price index (CPI) is due anytime. It is expected to show that inflation remains subdued, as early forecasts are for a 0.2% dip in the prices of German consumer goods.

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Strong economic data from the euro zone were unable to prop the EUR up against the USD and JPY. Anti-EUR comments from an ECB official pushed the EURUSD and EURJPY to lows of 1.4065 and 125.78 respectively.

According to ECB monetary policy committee member Nowotny, the current level of the EUR is appropriate and is justified by the euro zone’s fundamental standing. If the EUR starts to rally once again, growth and recovery in the euro zone could be in jeopardy. He also mentioned that the economic performance of the region is dependent on exchange rate stability.

On the economic front, data from the euro zone were mostly better than expected. French consumer spending surged by 2.1%, much higher than the consensus of a 0.7% increase. The German Ifo business climate reading improved from 94.6 to 95.8, surpassing the forecast at 95.2. Lastly, euro zone’s current account, which was expected to print a deficit of 3.1 billion EUR, switched gears and turned into a surplus of 0.1 billion EUR.

Euro zone’s economic schedule is report-free for today, which means that EURUSD movement could be vulnerable to economic events in the US. Better watch out for the release of the FOMC statement at 7:15 pm GMT since this could cause some fireworks in the markets!

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The euro continued to weaken against the yen and the dollar for the most part of yesterday’s session despite the lack of economic flows in the euro zone. It was only able to spring back to life and recover its losses vis-à-vis the yen when the FOMC stated that they will be keeping the central bank’s target interest rate band of 0.00% to 0.25% for an extended period of time in spite of the improving labor market.

Meanwhile, Germany’s unemployment change, which will be released later at 8:55 am GMT, is expected to be at 15,000 in January. Overall, Germany’s jobless rate is likewise seen to worsen to 8.2% from 8.1%. Consumer confidence in the euro zone, on the other hand, is projected to improve slightly to -15 from -16. But with a deteriorating labor condition, we might be up for a negative surprise in this account. Such, of course, could place more downward pressure on the EUR.

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The euro suffered another round of losses as concerns on Greece’s debt problems resurfaced yesterday. Risk aversion came strong, pushing the euro and other major currencies lower against the dollar and yen.

The results of the German unemployment change report failed to curb the overpowering wave of risk aversion. The report printed that the change in unemployed people in December only amounted to 6,000 and not 15,000 like initially expected. Still, this was the first increase of unemployed people in seven months, pushing joblessness in Germany to a whopping 8.2%.

Shortly after, euro zone’s consumer confidence survey was released. It printed -16 for December, the same reading seen the month prior. Since it was below the line in the sand figure of 0, it means that consumers remained pessimistic about the economy and their financial standing.

We’ve got a couple of interesting data on deck today.

First up is the euro zone’s M3 money supply at 9:00 am GMT. The report measures the total change in the supply of money deposited in banks and in circulation. The expectation is a decrease of 0.6%. Remember, increasing money supply is usually seen as a sign of improving economic activity that could lead to interest rate hikes in the future. On the other hand, when money supply is falling, the pressure for central banks to raise rates lessens.

At 10:00 am GMT, expect to see the CPI flash estimate and euro zone’s unemployment rate. The CPI flash estimate is predicted to show that the price level of goods and services purchased by consumers rose 1.2% this January. Meanwhile, euro zone’s unemployment rate is expected to have edged up to 8.4% in December from 8.3% in November. Better-than-expected results on the reports could help keep the euro’s head above the 1.3900 handle… For today, at least.

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The euro has been getting pummeled the last two weeks as risk aversion combined with overall euro zone weakness has been over riding the markets. The EURUSD fell an additional 300 pips last week. Will euro bulls try to enter the market as we start a new month?

The major news coming out from the euro zone last Friday were employment and inflation data. Unemployment figures came in slightly better than expected, indicating that unemployment now stands at 10.0%, after last month’s figure was revised down to 9.9%. It was expected that rate would hit 10.1%. Could we be seeing a peak in unemployment? Maybe, but I’m not quite ready to say that things are better yet. Remember, unemployment in the euro zone is at its highest level in over 10 years.

The euro zone CPI report indicated that inflation rose at its fastest pace in almost a year, hitting 1.0%. Still, this failed to meet expectations of a 1.2% figure. This suggests that prices wont be rising quickly and that the ECB may just keep their interest rate steady for the time being, seeing as how inflation isn’t a major concern right now.

Speaking of interest rates… the ECB will be making its interest rate decision on Thursday. As I said, don’t expect a rate hike anytime soon. I’m going to be on the lookout for any potential news about more unwinding of stimulus measures.

Also, take note that ECB President Jean Claude Trichet spoke on a French TV show last night, saying that a strong USD would be good for the global economy. Is this his way of talking down the euro? Remember, a weaker euro helps exports as it makes euro zone goods relatively cheaper. With that said, we could hear some comments regarding the euro’s recent weakness when the ECB holds its press conference following the rate decision.

Aside from the rate decision, we’ve got some high key German reports this week, with retail sales due tomorrow at 7:00 am GMT and factory orders scheduled for release on Thursday.

Retail sales are estimated to have grown by 1.0% in December after falling by 1.1% in November. No big surprise here – this could have been an effect of the holiday shopping. Meanwhile, factory orders are expected to have trickled higher by just 0.2% in December. Now, if these reports come in worse than expected, we may just see the euro get its butt kicked again this week.

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Finally! The EUR ended its losing streak against the USD yesterday as it climbed to a high of 1.3940 during the US session. Euro zone’s final manufacturing PMI enjoyed an upward revision, providing support for the EUR.

The final manufacturing PMI for December was revised higher from 52.0 to 52.4, indicating that the industry’s expansion was stronger than previously reported. This confirms that European manufacturers are stepping up production in order to accommodate the increasing demand for exports.

Today, Germany will release its retail sales report at 7:00 am GMT. It is expected to print a 0.9% rebound from November’s 1.7% plunge in retail sales. Since the retail sales report is a primary gauge of consumer spending, it could have a significant effect on EUR price action today. A better than expected figure could push the EUR higher, possibly until the 1.4000 handle. On the other hand, a weak report could force the EUR to resume its losing streak against the USD.

The euro zone is set to report its PPI at 10:00 am GMT today. Producer prices are slated to stay flat in December after posting a 0.1% uptick in the previous month.

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The euro closed mixed in yesterday’s trading. The EURUSD gained a little and rose to 1.3965 from 1.3931. The EURJPY, on the other hand, fell slightly to 126.22 from 126.29.

Germany’s December retail sales came in a tad lower than the 0.9% consensus with only a 0.8% gain. November’s figure was also revised downward to -1.7% from -1.1%. While any rebound in sales is good, the latest score was not enough to pull the whole quarter back to the positive territory. Fourth quarter retail sales were still down by 0.2%.

The result did not have much impact on the short term valuation of the EUR.

Today (10 am GMT), euro zone’s retail sales figure is on tap. Sales for the entire euro zone are expected to have increased by 0.4% in December after losing by 1.2% in November. But with the less-than-stellar German retail sales number and the downward revision in its November tally, it’s probable for the euro zone to also miss the market’s estimate. In any case, the result could just as well have a negligible impact on the euro’s short term movement unless the result-forecast discrepancy is notable.

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The euro, in just one day, managed to lose almost all of the ground it gained from the beginning of this week. The EURUSD, after hitting resistance at the 1.4000 region was quickly brought down to its knees to close the US session just a few pips under 1.3900.

Similar to Germany’s retail sales report, euro zone’s retail sales report yesterday failed to meet expectations. Instead of showing a growth of 0.4%, the report revealed that there was no change in sales between November and December as consumers remain insecure about their financial standing. Employment is still subdued, which is putting some downside pressure on economic activity.

For today, the important event to watch out for is the ECB’s interest rate decision at 12:45 pm GMT. No rate hike or cut is expected but please do watch out for any currency talks by bank officials, especially by ECB President Jean Claude Trichet. As I’ve mentioned before, he has been saying how the world economy needs a strong dollar… If he comes out later with a statement something similar to that, we could see the euro break this week’s low!

Before that though, expect to see the German factory orders report for the month of December. The pace of growth is predicted to have tapered down to 0.2% from 2.8% (revised up from 0.2%) in November.

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The euro got the wind knocked out of it when risk aversion came swing in full force. The EURUSD dropped by more than 150 pips from its opening price to close at a 8 month low of 1.3741.

Risk aversion was all over the markets yesterday, which saw stocks and higher yielding currencies fall flat on their face. Part of reason was the ECB rate statement, which did nothing to calm fears over the situation in certain parts of Europe. There is a lot of concern regarding Greece, Spain and now, Portugal, as investors worry that of a debt default. With all these problems plaguing the euro zone, its no surprise that the ECB kept their interest rate at 1.0% and will probably stay that way for awhile.

The only report of significance is the German industrial production report, which is expected to show that production rose by 0.6% in December. Seeing as how German factory orders failed to meet expectations and fell by 2.3% in the same month, can we expect a downward surprise?

For today, we can probably expect some light trading until the US NFP report comes out later in the day. Watch out for some volatile moves, especially if traders begin unwinding their riskier positions in light of recent events.

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Nothing could put a smile on the EUR’s face last week when it suffered loss after loss against the USD and JPY. Weak economic data released last Friday contributed to further selling pressure on the EUR, causing the EURUSD to tumble to the 1.3600 handle.

German industrial production data was a huge disappointment as it printed a 2.6% decline instead of the estimated 0.6% uptick for December. This surprisingly weaker than expected figure suggests that recovery in euro zone’s largest economy is losing momentum. Furthermore, economists are wary whether manufacturing activity would be able to pick up pace soon now that stimulus measures are running out.

Fortunately for the EUR, the non-farm payrolls report was unable to meet the forecast, forcing USD bulls to stop in their tracks. Still, the EURJPY continued to drop, eventually chalking up a new yearly low at 120.70.

Save for the GDP reports due Friday, euro zone’s economic schedule is almost empty for this week, leaving the EUR vulnerable to the bearish outlook brought about by the usual debt woes from Greece, Portugal, and Spain.

Today, the Sentix investor confidence report is due at 9:30 am GMT. Although this report is slated to have a minimal impact on the EUR price action, a stronger than expected figure could help the EUR stay afloat. The consensus is that the indicator would climb from -3.7 to -2.3 in February, indicating that investors are becoming less pessimistic with their 6-month economic outlook for the region.

Come Tuesday, we’ll see Germany’s trade balance and final CPI by 7:00 am GMT. No revisions are expected for Germany’s inflation indicator while its trade surplus is projected to narrow from 17.2 billion EUR to 14.6 billion EUR in December. On Wednesday, it will be France’s and Italy’s turn to report their industrial production figures. I hope it won’t be as dismal as Germany’s figures!

Lastly, on Friday, Germany, France and Italy are set to report their preliminary GDP figures for the fourth quarter of 2009. Both Germany and Italy could print slightly moderated growth figures this time after posting 0.7% and 0.6% GDP readings respectively in the third quarter. France, on the other hand, is eyeing 0.5% economic expansion in the last quarter, beating the 0.3% growth it printed before that. Could the EUR find support in upbeat GDP figures this week or would it go for another week in losses?

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The euro lagged behind the dollar and yen yet again in yesterday’s trading race. The EURUSD closed at 1.3660 from 1.3701. Similarly, the EURJPY also slipped to 121.97 from 122.50.

No top tier economic reports were due in the euro zone yesterday. Concerns regarding Greece’s soaring budget deficit, however, continued to add some selling pressure on the euro. Greek Finance Minister George Papaconstantinou stated yesterday that his government will not call for outside financial support as this alone could cause the yields on their bonds to skyrocket. At present, the government’s deficit figure remains above the EU’s 3% of GDP ceiling.

No major economic events are scheduled today in the euro zone as well. The EUR could just trade in a range bound fashion given the lack of economic flows.

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Thanks to the rumor of a €20 billion bailout plan for Greece, the euro was able to pocket some nice gains over the dollar in yesterday’s trading session. The EURUSD closed the US session strongly at 1.3795, roughly 150 pips higher from its Asian session open price.

In a surprise turn of events, euro zone powerhouse Germany gave some indication yesterday that it is prepared to step in and help Greece with its debt problems. This gave risk appetite a chance to shine, helping the euro regain some of the ground it lost last week. Then again, these are all talks are yet to be confirmed, which is putting a cap on the EURUSD rally. Additionally, European Central Bank member Ewald Nowotny said that the bank has no plans of bailing out Greece, as it has never been part of the bank’s charter.

For today, watch out for the French industrial production report for the month of December. The expectation is a 0.6% growth, lower than the 1.1% increase seen in November. Rising industrial production is usually considered bullish for the domestic currency as increased business activity could lead to improvements in the labor sector and employee earnings. The actual results will be released at 7:45 am GMT later.

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The euro gave back some of its winnings from the day before, as the dollar bounced back on some comments made by the Fed yesterday. The EURUSD closed lower at 1.3730 after trading as low as 1.3677.

Reports revealed that French industrial production dropped in December, as production fell 0.1% in December. The report failed to meet consensus of an increase of 0.6% although the impact of this data on the market was minimal. Seems as if traders were keeping their eyes and ears open for more news on Greece debt…

Remember, there are rumors circulating that Germany and other EU members will actually extend a helping hand to save Greece from its troubles. We can probably expect the EURUSD movement to be pretty volatile as traders decipher all the coded messages made by EU officials. In any case, we may have better indication of what their plans are for Greece when they meet today for the EU Economic Summit. If they fail to agree on a concrete plan to aid Greece, it may causes traders to sour on the euro once again.