Forex Blog

May 2, 2012

Euro Zone Unemployment at Its Highest Since 1997

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Euro zone unemployment rose to the highest in almost 15 years and manufacturing contracted for a ninth month.

According to the European Union’s statistics office, the unemployment rate in the 17-nation area sharing the euro increased to 10.9 percent in March from 10.8 percent in February. This is the highest level since 1997. The number of people out of work in the region reached a record high of 17.4 million in March.

Markit Economics reported that the manufacturing gauge in the region fell to 45.9 in April from 47.7 in March, indicating further that the euro zone economy continues to weaken.

A recent survey of economists showed that the European Central Bank is likely to keep its benchmark interest rate at 1 percent, in order to stimulate growth in the region.

In the 27-nation European Union, the unemployment rate was 10.2 percent in March, unchanged from the previous month and up from 9.4 percent in March last year.

Spain had the region’s highest unemployment rate in March, at 24.4 percent, Greece came in second with 21.7 percent. The lowest jobless rates were in Austria and the Netherlands, at 4 percent and 5 percent, respectively.

Source: Bloomberg

April 27, 2012

USD Drops As US First Quarter GDP Expands at 2.2%, Less Than Expected

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 8:00 am

THE TAKEAWAY: [U.S. 1Q GDP expands at slower-than-expected pace] > [U.S. recovery still only moderate] > [USDollar weakens]

The U.S. economy grew less than expected in the first quarter of 2012. The ‘advance’ estimate released by the Bureau of Economic Analysis showed that real Gross Domestic Product (GDP) rose at an annual pace of 2.2 percent. This follows 3.0 percent growth in the previous quarter, which was the fastest rate since mid-2010. The median forecast of 85 economists surveyed by Bloomberg News was for first quarter growth of 2.5 percent. The price index for GDP purchases, a gauge of prices paid by U.S. consumers, also fell short of projections in the first quarter of 2012, rising 1.5 percent compared to 0.9 percent in the previous quarter and consensus projections of 2.1 percent.

GDP was boosted by stronger-than-expected personal consumption growth, which rose 2.9 percent from 2.1 percent a quarter ago. On the other hand, growth in private investment slowed dramatically, falling to 6.0 percent from 22.1 percent the previous quarter.

EURUSD 1-minute Chart: April 27, 2012

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

The greenback fell against most of its major currency peers on the disappointing GDP print. The U.S. dollar tumbled 44 pips against the euro in the minutes following data release, and remained weaker than pre-data levels. At the time of this report, the EURUSD pair was trading at $1.3259 to the euro.

— Written by Tzu-Wen Chen DailyFX Research

April 23, 2012

Euro Zone Debt Rose to Its Highest Level

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The debt of the 17 nations sharing the euro rose to 87.2 percent of gross domestic product in 2011 – the highest level since the euro was introduced in 1999, according to the Eurostat report released today. In 2010 the debt level was at 85.3 percent.

The debt of the euro zone increased last year due to the governments’ efforts to fund bailouts of the neighbouring countries unable to repay its debts. Euro zone nations had to allocate 386 billion euros in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues, when their borrowing costs become unsustainable.

In the Eurostat report, Greece was on the top of the list with debt at 165.3 percent of GDP. Italy had the second-highest level of debt at 120.1 percent of GDP last year, while Spain’s jumped to 68.5 percent from 61.2 percent.

Only five euro region nations – Estonia, Luxembourg, Slovenia, Slovakia and Finland – had debt within the euro zone’s limit of 60 percent of GDP, while Estonia had the smallest proportion of debt at 6 percent. Ireland posted the biggest budget deficit in its history at 13.1 percent of GDP, which was higher than the 10.4 percent target under the country’s bailout program.

Germany had one of the only declines, with its debt shrinking to 81.2 percent from 83 percent, Eurostat said in the report.

The euro zone’s overall budget deficit declined to 4.1 percent of GDP in 2011 from 6.2 percent in the previous year, as Greece, Spain and France began to implement austerity measures aimed at containing the debt crisis and convincing investors that Europe can manage its public finances.

Source: Bloomberg

April 19, 2012

Currencies Locked in Tight Jittery Trade Ahead of Spanish Auction

Filed under: Forex News — Tags: , , , , , , , , , , , , , , — admin @ 7:38 am

By Joel Kruger, Technical Strategist for DailyFX.com

  • Investors squarely focused on Spanish auction results
  • Risk for letdown seem to be low; expect results to be well received
  • Aussie data continues to show signs of weakness
  • Keeping an eye on Swiss Franc
  • Bank of Japan committed to monetary easing

Markets seem to be a little jittery heading into Thursday trade, and although most currencies are locked in a tight consolidation, there is a sense that we could soon see a major breakout. The European economic calendar is all but empty, but that will be just fine, with investors squarely focused on the highly anticipated Spanish bond auction results. The build-up ahead of the event risk and reaction post, will likely dictate the flow of trade for the remainder of the day, and could very well inspire the aforementioned breakout. Spanish yields have been tracking at uncomfortably elevated levels around 6% and any sign of a poorly received auction could open a move towards the 7%, a level which saw other PIG (Portugal, Ireland, Greece) nations needing bailouts.

While an unsuccessful auction result would jive with our core outlook, which tends to favor further liquidation of the Euro and risk correlated assets, we have a hard time accepting that the source for the next bout of risk liquidation will be driven off of today’s auction result. Simply put, we feel that there is quite a lot of pressure on the Eurozone right now, and with so much attention on today’s auction, it would likely be disastrous should the auction fail. Instead, we see a situation where the auction is well received as local officials attempt to ensure success in light of the downside risks to failure, and the Euro temporarily finds renewed bids that keep the single currency supported. At that point, we will then look to take advantage of any unexpected Euro rallies and look to build into our core Euro short position, with underlying fundamentals still unfavorable in the region. If we are wrong and the auction is in fact unsuccessful, then we will stand aside and wait to sell the Euro into the first post auction rally.

Elsewhere, it is worth keeping an eye on the EUR/CHF cross rate after SNB Jordan was finally announced as central bank chief on Wednesday. The central bank is committed to capping any additional Franc gains, and should we see any pickup in risk off trade, it could once again force the SNB into action, with the cross rallying towards 1.2100. The key level to watch, in our opinion, comes in at 1.2050, with a break required to accelerate gains. Other recent developments include more weakness in Australian data as highlighted by the latest NAB business confidence reading, and comments from the Bank of Japan Governor who said the central bank is committed to monetary easing.

April 4, 2012

ECBs Introductinary statement

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“Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. The information that has become available since the beginning of March broadly confirms our previous assessment. Inflation rates are likely to stay above 2% in 2012, with upside risks prevailing. Over the policy-relevant horizon, we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Survey indicators for economic growth have broadly stabilised at low levels in the early months of 2012, and a moderate recovery in activity is expected in the course of the year. The economic outlook remains subject to downside risks.

Medium-term inflation expectations for the euro area economy must continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Over the last few months we have implemented both standard and non-standard monetary policy measures. This combination of measures has contributed to a stabilisation in the financial environment and an improvement in the transmission of our monetary policy. We need to carefully monitor further developments. It is also important to keep in mind that all our non-standard monetary policy measures are temporary in nature and that all the necessary tools are available to address upside risks to medium-term price stability in a firm and timely manner.

Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP contracted by 0.3% in the euro area in the fourth quarter of 2011. Survey data confirm a stabilisation in economic activity at a low level in early 2012. We continue to expect the euro area economy to recover gradually in the course of the year. The outlook for economic activity should be supported by foreign demand, the very low short-term interest rates in the euro area, and all the measures taken to foster the proper functioning of the euro area economy. However, the remaining tensions in euro area sovereign debt markets and their impact on credit conditions, as well as the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment in parts of the euro area, are expected to continue to dampen the underlying growth momentum.

Downside risks to the economic outlook prevail. They relate in particular to a renewed intensification of tensions in euro area debt markets and their potential spillover to the euro area real economy. Downside risks also relate to further increases in commodity prices.

Euro area annual HICP inflation was 2.6% in March 2012, according to Eurostat’s flash estimate, after 2.7% in the previous three months. Inflation is likely to stay above 2% in 2012, mainly owing to recent increases in energy prices, as well as recently announced rises in indirect taxes. On the basis of current futures prices for commodities, annual inflation rates should fall below 2% again in early 2013. In this context, we will pay particular attention to any signs of pass-through from higher energy prices to wages, profits and general price-setting. However, looking ahead, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain limited.

Risks to the outlook for HICP inflation rates in the coming years are still seen to be broadly balanced, with upside risks in the near term mainly stemming from higher than expected oil prices and indirect tax increases. Downside risks continue to exist owing to weaker than expected developments in economic activity.

ECB

March 27, 2012

Euro Heavy As Spain Bond Auction Disappoints, OECD Sees More Easing

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 8:19 am

By David Song, Currency Analyst for DailyFX.com

  • Euro: Spain Sells EUR 2.58B In Bills, OECD Calls For More Easing
  • British Pound: BoE’s Miles Lays Out Exit Strategy, Range-Bound Prices Ahead
  • U.S. Dollar: Fed Rhetoric, Consumer Confidence On Tap

March 26, 2012

German Business Confidence Increases

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German business confidence rose for the fifth month in a row, according to the results of a survey by the Munich-based Ifo institute. It rose to an eight-month high in March, suggesting that Europe’s largest economy will return to growth despite the reduced demand for its exports.

The Ifo business climate index, which is based on a survey of 7,000 executives, rose to 109.8 in March from 109.6 in February. Ifo’s gauge of the current situation was unchanged at 117.4, while an index measuring executives’ expectations grew from 102.4 to 102.7. Ifo’s retailing index jumped from 3.7 to 10.6, offsetting declines in gauges of manufacturing, construction and wholesaling. The Ifo increase was driven by the retail sector, showing that the domestic economy is helping Germany to withstand the external turmoil caused by the euro zone debt crisis.

Some economists noted that this month’s Ifo index rise was the smallest in the past five months, suggesting a potential decline in optimism regarding the German economy recovery. The recent data on the euro zone’s largest economy has been mixed. Germany’s GDP shrank 0.2 percent in the final three months of last year, but economists expect growth to pick up later this year. Last week, a report showed that German manufacturing activity contracted in March, and government and households reduced their spending.

Economists’ expectations were that the Ifo index would remain unchanged from the February level of 109.6. The euro strengthened after the report was released earlier today.

Sources: Bloomberg and BBC

A EUR Range Play?

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 4:41 am

It seems market participants are grappling between the desire to pick up some bargains following last weeks heavy equity declines and concerns about global economic growth. Despite some better news over the weekend that Germany does not intend to step in the way of the EFSF and EMS bailout funds to be combined to boost the regions firewall facility, it was Monti’s comments about Spanish concerns that could reignite Europe’s debt crisis has the EUR trading on the back foot after surprisingly stronger German data this morning.

German ifo index for March came in better than expected at 109.8. It was the fifth consecutive increase, and on the face of it, points to a modest increase in activity. However, “The near term risks remain skewed to the downside as oil prices might weigh on business profits and external demand remains sluggish, especially from other main euro-zone countries that suffer from a technical recession.” The markets initial reaction was to see a jump in EUR outright to just short of Asian overnight highs (1.3285). It was here that fresh intraday shorts took advantage of the spike.

Again, the market has lacked the impetus to breach the 1.33 option barrier trigger point. The unwillingness of many to make any more bold moves after last weeks disappointing US Industrial production numbers and Chinese and Euro-zone PMI’s has allowed Middle Eastern names to push the the single unit to test its daily low just below 1.32. Many this morning have been playing the range, pulling bids back, joining the stop-losses close to these levels while others have been gradually taking back their quick post ifo profit. The technical analysts will tell you that true support comes in around 1.3170 (10-day moving average), a region where there is sure to be stops below. Option expiries on the topside at 1.3250 will again bring in some Middle eastern selling names.

Markets focus by week’s end will be twofold. Ahead of the Euro group meeting, Germany is reportedly ready to allow a temporary increase in the overall euro-zone bailout fund. The compromise would allow the already existing commitments of the EFSF to run in parallel with the full lending capacity of the prospective ESM, boosting overall size available to about +€700b. If this plays out accordingly, the market can expect some relief. Last week’s flash estimate of Chinese manufacturing PMI suggests that the official PMI (at the end of the week) will likely fall in March. However, with the Chinese New Year holidays being in February for four out of the past five years, historically the official PMI tends to rise by +2.9 points in March from February. A result above 50 and the market should expect some Asian currency relief. So far, the market has only the enthusiasm to play the range.

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March 22, 2012

Euro Zone Output Contracted Despite Forecasts

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Euro zone services and manufacturing output shrunk, despite economists predicting an increase.

According to Markit Economics, a euro zone composite index based on a survey of purchasing managers dropped to 48.7 in march from 49.3 in February. The forecast was that economic output would rise to 49.6.

The region’s manufacturing output shrunk to 47.7 in March from 49 in February, and services declined to 48.7 from 48.8.

The region’s output contracted on the basis of declining domestic demand. A reading below 50 indicates a contraction, showing that the euro zone’s economy is sliding into recession.

Markit said that the downturn is only very mild at the moment, with the PMI signaling a drop in GDP of approximately 0.1 percent to 0.2 percent. However, a reported upturn in business confidence in the service sector provides hope that conditions may improve again later in the year.

Earlier this month, the European Central Bank raised its inflation forecasts for this year and said it expects the economy to shrink about 0.1 percent in 2012. It had previously projected an expansion of 0.3 percent.

The drop in the composite index followed the brief return to growth in January. This brings into focus the urgent need for the euro zone’s policy makers to identify ways to revive economic growth across the region.

Source: Bloomberg

March 14, 2012

Euro Zone Industrial Output Increased Less Than Expected

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 5:21 am

Industrial production in the EU’s 17 countries sharing the euro increased in January for the first time since October.

According to Eurostat, industrial production in January was up 0.2% from December, but 1.2% lower than in January 2011. The figures were weaker than expected. The forecast was that output would rise by 0.5% on the month, and would decrease by 0.7% on the year.

An increase in industrial output was driven by the energy sector, which increased its output by 1.4% from December, while production of non-durable consumer goods fell by 0.7%. That combination puts in question sustainability of the growing output, since energy output typically rises in the cold early months of the year, and the decline in non-durable consumer goods indicates manufacturers expect domestic demand to be weak.

Consumer prices increased by 0.5% from January. Annual inflation was 2.7% in February 2012, unchanged compared with January. A year earlier the rate was 2.4%. The annual rate of inflation remained well above the ECB’s target of slightly below 2.0%, and that will concern policy makers, particularly given the recent rise in oil prices.

The pickup in industrial production confirms expectations that if the euro zone is to enter a recession, it will be mild, at least in its initial stages. The euro zone economy contracted in the final quarter of 2011, the expectations are that it will contract this quarter too, which technically would amount to a recession.

Source: Wall Street Journal

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