Eur/usd - page 21

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EUR/USD Forecast August 26-30

EUR/USD advanced to a new 6 month high but eventually retreated back to range. Can it continue advancing? German Ifo Business Climate, employment data as well as German inflation data are the main events on our calendar this week. Here is an outlook on the main market-movers and an updated technical analysis for EUR/USD.

Last week German and Eurozone PMIs proved once again that the Eurozone is out of recession. Germany beat expectations with strong Services and Manufacturing PMIs leading the euro-zone to expansion. The main disappointment came from France with weaker than expected PMI readings. However all in all, the euro-area is on the right direction. In the US, the FOMC meeting minutes strengthened the notion that tapering is coming, but not all is well in the US. Let’s Start

  1. German Ifo Business Climate: Tuesday, 8:00. German business confidence increased for the third consecutive month in July, reaching 106.2 from 105.9 in June, slightly lower than the 106.3 forecasted by analysts. The recent upbeat suggests German economy is recovering. German unemployment unexpectedly dropped in June and was the first euro-area manufacturing to show expansion in two years in July. Business climate is expected to reach 107.1 this time.
  2. GfK German Consumer Climate: Wednesday, 6:00. German consumer sentiment soared to a fresh six-year high in July, rising to 7.0 points from 6.8 in June, higher than the 6.9 reading projected by analysts. This rise was aided by robust employment and a moderate inflation boosting consumption and growth. However Germany’s recovery will have its setbacks due to persistent recessions in fellow Euro-area countries. A further rise to 7.1 is forecasted.
  3. German Import Prices: Wednesday, 6:00. Germany’s import prices continued to decline in June, falling 0.8% compared with a 0.4 percent fall in May. The reading missed predictions for a 0.4% gain. On a yearly base, import prices declined 2.2% in June, following a 2.9% drop in May. The pace of decline, however, was the tamer in four months. A gain of 0.3% is anticipated now.
  4. M3 Money Supply: Wednesday, 8:00. The Eurozone seasonally adjusted annual M3 index dropped to 2.3%in June compared to 2.9% in May, missing analyst’s median estimates of 3.0%. A 2.0% rise is predicted this time.
  5. German CPI: Thursday. Preliminary data revealed inflation increased by 0.5% in June due to higher food costs attributed to a cold winter, floods which swept through eastern and southern Germany in June and a heat wave. The rise was higher than the 0.3% increase anticipated and followed a 0.1% gain in May. A further rise of 0.2% is expected.
  6. German Unemployment Change: Thursday, 7:55. The number of unemployed in Germany dropped unexpectedly by 7,000 in July, leaving unemployment rate close to its lowest level since the Eurozone formation. The improvements in hiring and salaries indicate private consumption will continue to support growth in the coming months. Another drop of 5,000 unemployed is anticipated.
  7. German Retail Sales: Friday, 6:00. German retail sales fell by 1.5% in June, the biggest drop this year. Household spending failed to boost growth in the second quarter. On an annual basis, the retail sales fell 2.8%, their largest drop in 2013. This decline was preceded by a 0.7% gain in the previous month. Nevertheless, consumer confidence remained strong. A gain of 0.5% is forecasted.
  8. Italian Monthly Unemployment Rate: Friday, 8:00. Italy’s unemployment rate remained near a record high in June with a mild drop to 12.1% from 12.2% in May. Companies did no hiring amid the country’s recession. The reading was worse than the 12.3% estimated; unemployment remained above 10% for a 17th month. Italian Government plans to pass a second package of measures for youth employment later this year to boost hiring. A rise to 12.2% is projected.
  9. CPI Flash Estimate: Friday, 9:00. The Eurozone inflation rate reached 1.60% in July according to market predictions. The main components measures for the CPI Index include: food, alcohol and tobacco, energy, non-energy industrial goods and services.
  10. Unemployment Rate: Friday, 9:00. The eurozone labor market continues to suffer a large scale unemployment and rampant youth joblessness. The number of unemployed declined slightly in June but unemployment rate remained unchanged at 12.1%. Analysts expected a worse reading of 12.2%. However, June’s small drop in unemployment can also mean a turn for the better for the Eurozone’s beaten economy.

*All times are GMT

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Merkel Says G20 Needs to Push Harder to Control Hedge Fund Risks

German Chancellor Angela Merkel told voters at an election rally that she’ll push for greater regulation of hedge funds at next month’s Group of Twenty meeting.

Addressing a crowd of about 2,000 in the Rhine city of Bonn, Merkel said she hoped European members of the G20 would “speak with one voice” at a meeting in St. Petersburg, amid slow progress on tightening controls on hedge funds. “It’s not enough to regulate just banks but not hedge funds and shadow banks and I’ll fight for that,” she said.

Merkel, campaigning in some 57 towns and cities in the final weeks before the Sept. 22 election, said her government kept its promise to make Germany emerge stronger from the financial crisis. Gaps remain in regulation that may leave taxpayers liable for banking failures while those responsible “disappear over the next hill.”

Merkel will make her only scheduled trip abroad before the election when she meets G20 leaders on Sept. 5 and 6. That includes U.S. President Barack Obama, whose administration this year urged the euro region to boost economic growth.

The chancellor will also meet Japanese Prime Minister Shinzo Abe. Senior members of Merkel’s Christian Democrats including chief parliamentary whip Volker Kauder have criticized Abe’s policy of targeting a 2 percent inflation rate. Manipulation of the yen’s value against other currencies may distort foreign-exchange markets and hurt the exports of Japan’s competitors, they said.

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Iceland, threatened by EU sanctions, nears dropping membership bid

Iceland, which is in the midst of a fishing spat that could end in trade sanctions from the European Union, indicated Thursday that it is close to abandoning its bid to join the 28 nation bloc.

The foreign ministry said it had received an opinion from its constitutional advisors that the government was not bound by a 2009 parliamentary vote to launch the membership talks.

"After receiving this opinion the foreign minister has decided to consider dissolving the negotiation committee," the ministry said in a statement.

Iceland suspended its adhesion talks in January ahead of parliamentary elections, and they have not been resumed after the victory in April of a centre-right coalition opposed to joining the EU.

The new government has promised a referendum on EU membership, which polls show Icelanders would probably now reject, but some members just want to abandon the talks.

Iceland, which is a member of the Schengen zone of visa-free travel that includes most EU states, was expected to have little little difficulty in its membership talks except for fishing issues.

Talks on fishing policy were never opened and a a fishing dispute over Iceland unilaterally increasing in 2010 its mackerel quotas is likely to end in EU trade sanctions.

The bloc this week imposed a ban on imports of herring and mackerel from the Faroe Islands for a similar increase in catching limits which broke a deal on multilateral management of north Atlantic fishing.

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Greece 'may need 10bn euros more' in aid - Stournaras

Greece may need a third bailout but would not accept new austerity measures, the Greek finance minister has said.

Yannis Stournaras said: "If there is need for further support to Greece, it will be in the order of about 10bn euros (£8.6bn; $13.4bn), or much smaller than the previous programmes."

Greece has already received two bailouts totalling about 240bn euros.

Meanwhile, Angela Merkel has warned about writing down any more Greek debt.

Germany's chancellor said a so-called haircut of Greek debt would be bad for the stability of the eurozone, which has seen a return in investor confidence after years of worrying about the future of the single currency following bailouts of several nations - most recently, Cyprus.

"I am expressly warning against a haircut," Mrs Merkel said. "It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing."

Her comments come after Germany's finance minister, Wolfgang Schaeuble, said - for the first time - earlier this month that Greece will need another bailout to plug a forthcoming funding gap.

The International Monetary Fund (IMF) last month estimated Greece would need around 11bn euros in 2014-15.

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Euro holds steady against dollar

The euro little changed against the dollar on Monday after data on Friday showing that U.S. new home sales fell last month added to uncertainty over when the Federal Reserve may start to phase out stimulus measures.

EUR/USD hit 1.3393 during late Asian trade, the session high; the pair subsequently consolidated at 1.3381, inching up 0.03%.

The pair was likely to find support at 1.3322, Friday’s low and resistance at 1.3426, the high of August 21.

The Commerce Department said U.S. new home sales fell by a larger-than-forecast 13.4% in July, the largest decline in more than three years.

The weak data sparked concerns over the strength of the recovery in the housing sector and fuelled speculation over whether the Fed will start to scale back its USD85 billion-a-month asset purchase program in September.

The euro remained supported after a senior European Central Bank policymaker said Friday he did not see many arguments for a rate cut following a recent series of improved economic data from the region.

The euro was steady against the pound, with EUR/GBP dipping 0.01% to 0.8592 and was lower against the yen, with EUR/JPY down 0.23% to 131.76.

Investors were looking ahead to U.S. data on durable goods orders later in the day, while trade was expected to remain thin with markets in the U.K. closed for a national holiday.

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ECB Weidmann: Greek Haircut Would Send Wrong Signal

Greece receiving a third haircut would send the wrong signal, European Central Bank Governing Council member Jens Weidmann said in an interview with German daily Handelsblatt for release on Monday.

"A debt relief that would only leave us to confront the same situation in five years would be counterproductive and a wrong signal for program countries," Weidmann told the paper.

"New aid alone does not create competitive companies and sustainably solid public finances," Weidmann, who heads the German Bundesbank, said.

Weidmann cautioned that it is too early to declare an end to the sovereign debt crisis.

The debate over a third aid package for Greece shows "that the crisis is not over and much remains to be done to overcome it," he said.

German Finance Minister Wolfgang Schaeuble said last week that Greece is likely to need another aid package, but excluded the chance of another haircut.

"To conjure up a quick end of the crisis is a factual mistake and weakens reform efforts," Weidmann said.

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Italian Bonds Plunge To Worst Day In 9 Weeks

With the UK on holiday (vacation), European markets were relatively quiet - apart from Italy... The Berlusconi debacle rolls on and sparked the worst sell-off in Italian sovereign bonds in 9 weeks and pushed the spread on BTPs over Bunds to its highest in 3 weeks. Most European equity markets closed mildly lower (with Germany's DAX unch - recovering from its EUREX-halting drop earlier in the day. Italian stocks were the big underperformer (down 2.2%). For the 3rd day in a row, Europe's VIX was smashed lower from an opening high print to close at its lows. The UK and its 'credit police' will be back tomorrow.

Worst day for Italian bonds in 9 weeks...

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Greece 'may renegotiate rescue loans'

Greece may seek to ease its debt burden by renegotiating its bailout terms, the Greek finance minister said on Monday.

Yannis Stournaras told German newspaper Handelsblatt this could involve lower interest payments and more time to repay 240bn euros (£206bn) in loans.

It comes a day after he conceded that Greece may face a hole in its finances of up to 10bn euros.

Speculation over Athens' borrowing needs comes at a sensitive time, with German elections due in September.

Earlier this month German Finance Minister Wolfgang Schaeuble said for the first time that Greece will need another bailout to plug a forthcoming funding gap.

The Greek bailout remains a sensitive topic in Germany. Chancellor Angela Merkel is seeking re-election on 22 September, and many German voters feel they have already contributed enough to European bailouts.

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Is The Euro At Risk Of Correction?

For the past two weeks, the euro has been hovering near six-month highs against the U.S. dollar and given the recent rise in U.S. yields and the prospect of Fed tapering, some investors are wondering if the euro is due for a correction and the dollar is due for a bounce. While rising U.S. yields should attract demand for dollars, investors may have to wait if they want to see a correction because there's a significant amount of top tier German economic reports scheduled for release this week. We believe these reports will show the euro-zone recovery gaining momentum, which should lend support to the euro and could even give the currency the push that it needs to close above 1.34 in a meaningful way. In other words, we don't expect a significant EUR/USD correction this week.

The last unofficial week of summer usually means less volume traded and lower liquidity in the forex market. For those of us that will be on the desk watching quotes, thin trading conditions could exacerbate the market's reaction to German data. The IFO report is scheduled for release on Tuesday and based on the rise in PMI manufacturing, increase in industrial production and factory orders, German businesses should have grown more optimistic in the month of August. Last week's PMI numbers confirm that the recovery is gaining momentum after the euro zone exited from recession last quarter and if there are further improvements in the German IFO, retail sales and unemployment reports, investors could start to price in less pessimism from the European Central Bank next week.

In the meantime the euro ended the day unchanged against the U.S. dollar despite a 2% slide in in Italian stocks and concerns that Greece could need another round of aid. Silvio Berlusconi is no longer leading the government but he continues to cause havoc for the markets. Members of his centre-right Freedom Party threatened to bring down the government by calling early elections if Berlusconi is pushed out of parliament after being convicted of tax fraud. The vote on evicting him from the government is scheduled for October. If new elections are held, there may be no majority government and that could mean a complete standstill for fiscal reforms in Italy. Aside from stocks, Italian bonds also moved sharply lower, driving 10 year yields up 7bp. As for Greece, German Finance Minister Schaeuble said on Sunday that debate about a new debt cut prompted him to say that the country will need further aid. German Chancellor Merkel agrees that a debt cut would be dangerous and could potentially unsettle the market. Greece on the other hand continues to deny that debt levels are a concern while ECB Board Member Asmussen called on Greece to press ahead with reforms despite the pain.

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EUR/USD August 27 – Lower Despite Solid German Business Data

After a very quiet start to the week on Monday, EUR/USD has posted modest losses in Tuesday trading, with the pair trading in the low-1.33 range in European trading. The euro dipped lower despite another strong release from German Ifo Business Climate, as the key indicator cruised to a sixteen-month high. There are just three other events on Tuesday, highlighted by US CB Consumer Confidence.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

In the Asian session, EUR/USD was quiet, touching a low of 1.3356 before consolidating at 1.3360. In the European session, the pair has edged lower.

Current range: 1.33 to 1.3350.

Further levels in both directions:

  • Below: 1.33, 1.3240, 1.3175, 1.31, 1.3050, 1.30 and 1.2940.
  • Above: 1.3350, 1.3415, 1.3450, 1.3520, 1.3590 and 1.37.
  • The round number of 1.33 is providing weak support. 1.3240 is next.
  • 1.3350 has reverted to resistance. 1.3415 is stronger.

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