Eur/usd - page 69
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Attempts to talk down the euro unlikely to succeed
As the value of the euro continues to rise gradually, we have heard some officials try to talk down the currency. Simon Smith of FxPro reminds us of the poor track record in moving the currency, and merely limited impact that such talk can have.
In the interview below, Smith also discusses the chances of more steps from the Bank of Japan, the complications of forward guidance in the UK, the impact of bad weather in the US and more.
Simon has over seventeen years experience of macro forecasting and investment strategy research. Prior to joining FxPro in May 2010, Simon was a consultant with Thomson Reuters, having spent four years as Chief Economist at Weavering Capital. He has held economic and strategy positions with Standard & Poor’s, together with consultancy firms 4Cast and MMS International. Simon holds an MSc. in Economics from the University of London and a BSc. from Brunel University.
The head of the Eurogroup commented on the exchange rate of the euro and said that some say it is too high. Can we expect more attempts to talk down the euro if it continues to show strength? Can this have a significant effect on the euro?
Both the ECB and other Eurozone official have a very bad track record in talking the currency up or down, which ultimately lead to the previous ECB President crowning himself “Mr. Euro” after the cacophony of verbal interventions from different officials during his time. Even at the best of times for other currencies, verbal intervention only has limited and short-lived impact and usually as a re-enforcement of either a trend or a turn-around that is already underway and/or if the market is very short or long a particular currency, causing it to be wrong-footed. So even if we do see more of such comments, then they will be of only limited impact, especially as it has more been the dollar running the show recently.
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French manufacturing PMI falls to 2-month low of 48.5 in February
Manufacturing activity in France contracted at a faster rate than expected in February, fuelling concerns over the economic outlook of the euro zone’s second-largest economy, preliminary data showed on Thursday.
In a report, market research group Markit said that its preliminary French manufacturing purchasing managers’ index inched down to a seasonally adjusted 48.5 this month from a reading of 49.3 in January. Analysts had expected the index to rise to 49.6 this month.
Meanwhile, the preliminary services purchasing managers’ index fell to a seasonally adjusted 46.9 in February from 48.9 in January and below expectations for an increase to 49.4.
A reading above 50.0 on the index indicates industry expansion, below indicates contraction.
Commenting on the report, Jack Kennedy, Senior Economist at Markit said, “French private sector firms reported a slightly sharper decline in output during February, largely reflecting weakness on the services side.”
Following the release of the data, the euro added to losses against the U.S. dollar, with EUR/USD shedding 0.13% to trade at 1.3715, compared to 1.3731 ahead of the data.
Meanwhile, European stock markets were lower after the open. The EURO STOXX 50 fell 1.2%, France’s CAC 40 declined 1.1%, London’s FTSE 100 slumped 0.85%, while Germany's DAX dropped 1.5%.
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Growth in Germany’s private sector accelerates in February
Key points:
Summary:
Germany’s private sector firms reported a further solid rise in activity in February, with the seasonally adjusted Markit Flash Germany Composite Output Index posting a 32-month high of 56.1, up from January’s reading of 55.5. The current sequence of activity growth now stretches to 10 months.
Manufacturing companies signalled an easing in the pace of production growth in February, although the latest expansion was still among the steepest seen since early 2011. Increased order intakes was the primary driver for the latest rise in output, according to panel members. Meanwhile, service providers reported the sharpest rise in activity since November.
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German Economy To Expand Moderately In Near Term: Conference Board
Germany's leading index increased further in December, but at a slower rate than in the previous month, suggesting that economic growth will remain moderate in the near term.
The leading economic index edged up 0.1 percent month-on-month to 108.2 in December, after recording a 0.5 percent rise in November and a 0.1 percent gain in October. The index has been on an upward trend throughout 2013.
The positive contributions to the leading index came from the yield spread, stock prices, and inventory change. The negative contributors were new residential construction orders, new orders in investment goods industries, and consumer confidence.
Meanwhile, the coincident economic index, which gauges the current economic situation, decreased 0.2 percent in December from the preceding month. This followed a 0.4 percent rise in November.
During the six months ended December, the leading index increased by 1.2 percent, while the coincident index stayed unchanged.
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Germany has 'unfair' edge with low salaries: minister
Germany's low salaries have given Europe's biggest economy an "unfair" competitive advantage over its partners and must be corrected, a junior German minister has said.
Michael Roth, state secretary for European Affairs, was commenting on Germany's record trade surplus, which surged to nearly 200 billion euros ($270 billion) last year, and has seen Berlin placed under EU scrutiny.
He said in an interview with AFP Thursday that imbalances had appeared among EU members and there "was a duty not only for countries running a deficit but also for Germany to reduce them".
The comments by the Social Democrat politician differ from the stance of Chancellor Angela Merkel's conservatives, who disagree that Berlin has a problem with its trade surplus despite it consistently exceeding EU limits.
"With the sharp rise of the low-wage sector in Germany, the growth in precarious employment, we have given ourselves an unfair advantage over our partners," Roth said.
"It must be gradually eliminated," he added.
Merkel's new left-right "grand coalition" with the Social Democrats has already sent "a clear sign" of change through its agreement to introduce a national minimum wage, Roth said.
And tackling Germany's trade surplus -- which he said was a "sensitive" topic in Germany -- was "not about reducing exports but rather about increasing domestic demand."
Germany has seen a rise in low-paid jobs and precarious work contracts since a raft of labour market reforms introduced around a decade ago under Merkel's predecessor, ex-chancellor Gerhard Schroeder, which helped bring Germany's unemployment rate down to one of the lowest in the EU.
But Berlin has also come under pressure from the US to spur consumption and investment at home to help revive European growth.
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EUR/USD Forecast February 24-28
EUR/USD reached out to higher ground, riding on uptrend support, but did not close at the highs. German Ifo Business Climate, German Retail Sales, and the all-important inflation figures are the main market movers this week. Here is an outlook on the major events and an updated technical analysis for EUR/USD..
The euro already made a nice break to a 6 week high, but could not sustain the gains. Worse than expected French PMIs. German sentiment and attempts to talk down the euro had temporary effects and provided dip buying opportunities. However, the growing notion that the ECB could act while the Fed isn’t likely to halt tapering despite weakness in the US eventually limited the gains. The inflation / deflation discussion will reach a climax now. Will EUR/USD make big moves now?
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EUR/USD weekly outlook: February 24 - 28
The euro was higher against the dollar on Friday following the release of weaker-than-expected data on U.S. existing home sales, amid ongoing concerns over the impact of severe winter weather on the economic recovery.
EUR/USD ended Friday’s session up 0.15% at 1.3739, holding below the seven-week high of 1.3772 reached on Wednesday. For the week, the pair gained 0.26%.
The pair is likely to find support at 1.3584, Thursday’s low and resistance at 1.3772, Wednesday’s high and a seven-week high.
The dollar slid against the euro after data showed that U.S. existing home sales fell by a larger-than-forecast 5.1% in January, dropping to an 18-month low.
The report came on the heels of a recent series of disappointing U.S. economic reports, which investors have attributed to severely cold winter weather.
Wednesday’s minutes of the Federal Reserve’s January meeting showed that officials agreed the current pace of reductions to the bank’s asset purchase program would remain unchanged, so long as the economy shows signs of improvement.
The U.S. central bank is currently purchasing $65 billion of assets per month.
The euro’s gains were held in check after survey data on Thursday showed that private sector activity in the euro area slowed in February.
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German IFO Business Climate rises to 111.3 points – EUR/USD climbs
The German IFO institute released better than expected sentiment figures. Business Climate in Germany rose to 111.3 points. It was expected to remain stable in February, staying around 110.7 points seen in January. The expectations component was predicted to slide from 108.9 to 108.2 points and it came out at 108.3 points.. The “current assessment” figure was predicted to tick up from 112.4 to 112.8 points and here we already have a bigger surprise with a rise to 114.4 points.
EUR/USD traded at around 1.3750 before the publication. It is now at 1.3765.
IFO is considered to be Germany’s No. 1 Think Tank. Last week, the ZEW Economic Sentiment disappointed with a significant drop after long months of rises.
Later on today, we get the final CPI numbers for January, which are not expected to change.
Euro/dollar is now on high ground, continuing the rise along uptrend support.
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Euro Area January Inflation Revised Up To 0.8%
Consumer prices in the Eurozone increased at a faster pace in January than estimated earlier, but the rate of inflation remained unchanged from the December level, revised figures released by Eurostat showed Monday.
The harmonized index of consumer prices (HICP) rose 0.8 percent year-on-year in January, which was unchanged from the December growth rate. The preliminary estimates were for a 0.7 percent growth in January.
At the same time, core inflation, which excludes energy, food, alcohol and tobacco, rose to 0.8 percent from 0.7 percent in December, in line with the initial estimates.
Inflation has stayed below the European Central Bank's target of 'below, but close to 2 percent' for the twelfth consecutive month.
In January, food, alcohol and tobacco prices rose 1.7 percent, while energy prices declined 1.2 percent. Cost of non-energy industrial goods gained 0.2 percent and that of services advanced 1.2 percent.
On a monthly basis, consumer prices recorded a 1.1 percent decline in January, the agency said.
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Euro Weakens as CPI Fuels ECB Easing Speculation
The euro fell against most of its 16 major peers on speculation a deteriorating outlook for consumer prices may prompt the European Central Bank to add monetary stimulus next week.
The 18-nation currency dropped as consumer inflation remained below 1 percent at an annual rate last month and ECB Executive Board member Peter Praet said the central bank has tools to use if its mandate to maintain price stability. China’s yuan extended a decline from its biggest weekly drop in more than two years after the central bank lowered the currency’s reference rate.
“The timing of the statement clearly suggests they’re discussing policy options,” said Athanasios Vamvakidis, a currency strategist at Bank of America Corp. in London, referring to the ECB. “If we see inflation falling further, further easing is very likely.”
The euro dropped as much as 0.4 percent before trading at 140.88 yen at 12:45 p.m. New York time, after advancing to 141.27 on Feb. 21, the strongest since Jan. 24. The single currency declined 0.1 percent to $1.3738. The dollar was little changed at 102.53 yen.
JPMorgan Chase & Co.’s volatility index for the currencies of Group of Seven nations fell to 7.56 percentage points, the lowest since Oct. 24. The gauge reached 8.74 percentage points on Feb. 3.
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