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EUR/USD: Euro Around $1.14 as Greece Remains Key Issue
The European calendar is expected to be calm at the beginning of the week, however Greece remains the primary focus.
In the latter part of the week, the focus will be on a raft of economic data from Europe, as well as the publication of central bank minutesfrom the Federal Reserve.
"There are concerns that the recent recovery in European data could start to plateau as the euro recovers. The latest German ZEW surveys as well as the latest French and German May PMI updates, aren’t expected to show much of an improvement on some of the more recent updates," Michael Hewson from CMC Markets UK wrote on Monday.
The euro traded down 0.38% around $1.1400 before noon in London, swinging lower from last week's highs. With the euro trading as low as $1.1365 intra-day and Greece remaining the main concern, European equities were seen higher on Monday.
Greece remains in the headlines as the country struggles to pay its obligations. According to reports in the Greek media, the country's credit system has a cash cushion of just €3.5 billion in unused liquidity, following an increase in the deposits outflow last month.
On the other side of Atlantic, the main focus this week in light of the continued weakness in US economic data will be the release of the Federal Open Market Committee minutes. "Though given some of the recent weakness seen in the data since the meeting at the end of April, these minutes could well be somewhat stale," Hewson added.
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EUR/USD: Pair Shifts Below $1.14, Erases Friday's Gains
The greenback managed to recover slightly from Friday's sell-off, although the trend remains negative for the US dollar. EUR/USD was seen hovering around $1.14 and was somewhat lower on the day, while bulls will probably wake up soon and push the pair to new daily highs above $1.1450.
The greenback dropped sharply on Friday after the University of Michigan's Consumer Confidence Index fell to 88.6, missing the expected 95.9. Worsening figures from the US economy might hint at the delaying of rate hikes by the Federal Reserve, which is pressuring the greenback. The pair rose around one big figure to stall at $1.1450 and started slowly easing during Asian trading on Monday.
The pair remains influenced mainly by the divergence in monetary policies. The European Central Bank (ECB) pledged that it will fully implement the amount of QE, meaning it will buy €60 billion of bonds monthly until September 2016, while on the other hand, the Federal Reserve is expected to raise interest rates sometime in 2015.
The different outlooks weigh on bonds and their respective yields and the yield differential is one of the main drivers of movements in EUR/USD.
Greece remains in the headlines as the country struggles to pay its obligations. According to reports in the Greek media, the country's credit system has a cash cushion of just €3.5 billion in unused liquidity, following an increase in the deposits outflow last month.
As there are no major economic news on the agenda today, trading should be calm and volatility only mild, with investors waiting for Wednesday's Federal Open Market Committee minutes.
"Senior ECB policymakers have been out in some force in recent days stressing that the bank plans to fully implement its Quantitative Easing program. The ECB is clearly keen to dilute any market questioning of whether its QE program will need to be fully implemented given the euro zone exiting deflation in April and GDP growth improving to 0.4% quarter-on-quarter in the first quarter. The ECB will be concerned that if market expectations about a premature ending to QE were to build up now, then their objectives might be defeated," Howard Archer, chief European economist at IHS Economics, wrote in a note on Monday.
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The rise of the euro continued on Friday, when the price peaked at 1.1465. The next important level for the greenback on the way up is at the psychological level at 1.1500. At the same time the strong one-way traffic, poses a correction in favor of the dollar, which lower the cost to support around 1.1270, and then to this 89-day moving average located at another psychological level at 1.1000.
The upward movement of the euro seriously test the validity of long-term downtrend. The couple turned to the trend line built on the tops of May 8, 2014, when he began the rise of the dollar. Breaking this level would be a strong signal for an end to the long-term downtrend, which is located couple of years ago.
Unfortunately price couldn't break 1.1450 and rebounded from the resistance level. now lets see the option of short under 1.1300.
EUR/USD: Euro Steps From 3-Mth High, Inflation Data Loom
The US dollar managed to post solid gains against the euro currency on Monday, moving away from its three-month low at $1.1467 hit on Friday, during the data-quiet session on both sides of the Atlantic.
"We're happy because we sold euros on Friday and we think this move may continue," Credit Agricole Head of European FX strategy Adam Myers mentioned. "Short term, I think we go to $1.1350 today and, if the U.S. inflation numbers are better than expected at the end of the week, we could push on to as low as $1.125."
Therefore the focus turned once again to the Greek debt crisis, while investors awaited upcoming inflation updates. Moreover, the influential Federal Open Market Committee minutes are due on Wednesday.
The EUR/USD cross was trading 0.85% lower at $1.1346, however the pair stayed in a sharp uptrend on the daily chart as traders anticipated a later rate hike by the Federal Reserve based on soft macro updates in the first quarter of 2015.
On Monday, investors absorbed the earlier negative statement of European Central Bank Executive Board member Yves Mersch, who said that Greek banks are no longer tenable as they are running short on the collateral they need to stay afloat.
The government in Athens won't be able to make a scheduled International Monetary Fund payment on June 5 unless an agreement is reached with Athens' creditors, according to the fund's leaked May 14 memo.
"The day of reckoning is coming for Greece," CMC Markets chief market analyst Michael Hewson mentioned. "We've been worried about an end-game for some time and the letter to the IMF shows just how serious the position in Greece is."
Meanwhile, Chicago Federal Reserve (Fed) President Charles Evans stated that the Fed might keep rates at the record low until early 2016. However, he answered one of the questions following by saying that markets should not be surprised if the mostly dovish Fed re-evaluates its view of the US economy at the June meeting.
Week ahead
The US macro calendar offered only one update, in the form of the NAHB Housing Market Index which hit 54 points in May, missing the estimate by 2 points. However, the index stayed above the 50 threshold, indicating an expansion of the market for the eleventh month in a row.
Thus traders are looking ahead as the current week will bring several key updates. Fresh inflation figures for the whole euro zone and Britain, along with Germany's ZEW survey for May will be released on Tuesday. In the US, the latest inflation figures are scheduled on Friday, with traders expecting a marginal drop to the deflation area at -0.2% annually in April.
However, the release with the most market-moving potential is scheduled on Wednesday, as the Fed publishes the minutes from its latest meeting, while Fed Chair Janet Yellen will speak on Friday.
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ECB's Coeure says short-term rate below zero doesn't pose policy problem
Euro under further pressure with EURUSD testing 1.1250 1.1230 on the remarks
Text of a speech to be given in London
EURUSD fell on yesterday session with a wide spread day and closed near the low of the day, shy above the 10-day moving average. The high momentum witnessed yesterday is suggesting that the 10-day moving average may not support the price and a break below will throw the currency to the daily support at 1.1097.
EUR/USD: Euro Plummets as QE Accelerates
The pair was trading sharply lower on Tuesday and dipped below the $1.12 mark after European Central Bank (ECB) Governing Council member Benoit Coeure said that the central bank is set to front load QE purchases in May and June. The reaction was very heavy and the pair dropped around 140 pips from intraday highs around $1.1320 to $1.1175.
Moreover, CPIs from the euro zone are due today as well, followed by the ZEW survey from Germany. US fundamentals later in the day include both building permits and housing starts, which are expected to improve from last month's readings.
"Senior ECB policymakers have been out in some force in recent days stressing that the bank plans to fully implement its Quantitative Easing program. The ECB is clearly keen to dilute any market questioning of whether its QE program will need to be fully implemented given the euro zone exiting deflation in April and GDP growth improving to 0.4% quarter-on-quarter in the first quarter. The ECB will be concerned that if market expectations about a premature ending to QE were to build up now, then their objectives might be defeated," Howard Archer, chief European economist at IHS Economics, wrote in a note on Monday.
Greece remains in the headlines as the country struggles to pay its obligations. According to reports in the Greek media, the country's credit system has a cash cushion of just €3.5 billion in unused liquidity, following an increase in the deposits outflow last month.
According to the CFTC and Rabobank's research, USD longs fell for a fourth consecutive week as investors repositioned for a later first Fed rate hike. Although net USD positions are still firmly in long territory, they are at their lowest level since December of last year.EUR shorts pared back further, to levels last seen in March. Better euro zone economic data are supportive, though the ECB’s QE program and Greek concerns are a drag on the EUR.
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German Business Captains Less Optimistic in May: ZEW at 5-Mth Low
German analyst and investor morale continued spiraling downwards in May, extending last month's dip and hitting the lowest level in three months, the ZEW Center for European Economic Research revealed in its latest survey on Tuesday.
The ZEW Economic Sentiment Index, evaluating the economic outlook of about 350 respondents for the six months ahead, fell to 41.9 in the fifth month of the year, down from the previous month when the reading stood at 53.3 points.
Moreover, the Current Situation Indicator came in at 65.7 in the reported month, declining from April's 70.2 and compared with analysts' forecast of 68 points.
German economy stumbles in Q1
A few days ago German GDP data for the first quarter were released and showed the rate of growth in Germany came in well below the expectations of economists.
Germany's GDP in the first three months of 2015 expanded 0.3%, following the 0.7% upturn seen in the final three months of 2014.
On an annual and non-seasonably adjusted basis, the euro area's number one economy added 1.1%, compared to the 1.6% expansion seen in the fourth quarter.
The data revealed that consumers remained the main driver of growth, continuing the trend from the fourth quarter of 2014, as a low-interest environment makes saving unattractive and rising wages and record-low unemployment boost consumption.
According to the Bundesbank, Germany's central bank, "rising employment combined with distinctly increasing wages, a substantial rise in purchasing power on account of the plummeting oil prices, and the impact of economic policy instruments such as the introduction of the option to retire on a full pension at the age of 63, the mothers' pension and the general minimum wage" were the main drivers behind the upswing in private consumption.
Public spending and investment also boosted GDP.
The Q1 data confirmed the Germany economy is undergoing a transformation as the dependence on exports is gradually being complemented by strong consumer spending as one of the main drivers fueling economic output.
Destatis, the German federal statistics office, said that an increase in imports outpaced export growth, which increased only slightly in the reported period as weaker euro zone trading partners and lower demand from China have hit overseas trade levels.
In the first quarter of 2015 German firms' foreign business failed to maintain the momentum experienced in the second half of 2014 and the reason for this is the flagging global economy, according to the German central bank's Monthly Report.
"In China, growth in real gross domestic product (GDP) slowed distinctly, while GDP in Russia and Brazil probably even shrank on the previous quarter," the Monthly Report notes.
Combined with anemic growth in the US in the first quarter the exports of German enterprises were hampered in the reported period and this effect could not be compensated by the softer euro, the central bank said.
"The effects of the depreciation in the euro, as might be expected, only normally become apparent after some time has elapsed," the economists commented.
Nevertheless, analysts believe growth in Europe's powerhouse remains robust and is set to strengthen in the months ahead.
"The upswing is in good shape, we expect solid growth in the coming quarters," according to Unicredit economist Martina von Terzi.
Andreas Scheuerle, economist at Dekabank agrees, saying that "the global economy will pick up and lead to more export activity, paired with continuing strong domestic demand".
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ECB's Noyer: We are Ready to Extend QE
The European Central Bank (ECB) is ready to extend its stimulus (meaning boost its the asset purchase plan) should the current current quantitative easing program proves insufficient to increase price growth in the bloc, the bank's Governing Council member Christian Noyer said Tuesday.
"The Eurosystem is ready to go further if necessary to deliver on its mandate of maintaining inflation close to but below 2%," Noyer told the audience at a Euromoney conference speech in Paris.
His comments were likely targeted to the QE program as several policymakers had stressed multiple times that the current interest rates would not be lowered any further.
At the same time, however, he reiterated that the central bank's program to buy €60 billion of assets a month has had a positive impact on inflation expectations. But re-anchoring inflation expectations takes time, he said.
'September 2016 and beyond'
"The purchase program will continue until the end of September 2016 and beyond if we do not see a sustained adjustment in the path of inflation," he claimed.
Noyer's comments mirrored several speeches from his peers from the rate-setting body, including the bank's president Mario Draghi.
Also on Tuesday, the bank's Executive Board member Benoit Coeure signaled that the Frankfurt-based central bank is currently buying more assets under its quantitative easing program than targeted in order to prepare for probable quiet trading in the summer months. His comments sparked a weakness in the euro.
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