Economic Data Weekly Revive February 22-26

by Yohay

French Consumer Spending: Published on Tuesday at 7:45 GMT. The continent’s second largest economy enjoyed a big rise in consumer spending last month, and is doing well, all in all. This time, consumers are predicted to cut their spending by 0.6%.

  German Ifo Business Climate: Published on Tuesday at 9:00 GMT. This major survey of 7000 businesses is rising steadily, contrary to other European surveys. Last month’s 95.8 score is expected to be followed by 96.3, continuing the steady rise of this index month by month.

NBB Business Climate: Published on Tuesday at 14:00 GMT. This survey from the small country of Belgium reflects the situation quite well – steady improvement, but still negative. It’s predicted to edge up from -7 to -5 this time, after disappointing last month. A positive number will boost the Euro.

German Final GDP: Published on Wednesday at 7:0 GMT. The zone’s largest economy has been the locomotive for growth in the middle of 2009, but failed to grow in Q4. The stagnant economy hurts the Euro. This 0% growth is predicted to be confirmed. IF the German economy contracted in Q4, this will be a blow to the Euro.

GfK German Consumer Climate: Published on Wednesday at 7:00 GMT and overshadowed by the GDP release. 2000 German consumers have reached the peak of their optimism in September, but have lost confidence since then. The score of 3.2 is expected to remain unchanged this time.

Industrial New Orders: Published on Wednesday at 10:00 GMT. New orders by manufacturers made a great surprise last time by rising in a scale of 2.7%. This indicator is usually volatile, so this month will probably see a drop of 1.2% in the sales volume.

German Unemployment Change: Published on Thursday at 8:55 GMT. After 6 straight months of drop in unemployment, a rise of 6000 people was seen last month. This negative will probably be continued with another rise – 18,000 this time. Yet another weak figure from this big country, which nicely fits into the double-digit European unemployment rate.

M3 Money Supply: Published on Thursday at 9:00 GMT. The amount of money in circulation fell in the past two months. This is a rare event. Less money means less inflation and a weak currency. A rise of 0.2% is expected this time – some stability.

Consumer Confidence: Published on Thursday at 10:00 GMT. This consumer survey is run by the official Eurostat institute. 2,300 consumers have showed less pessimism during the past months, with the score reaching -16 last month – in the negative zone. A retreat to 017 is predicted this time.

German Prelim CPI: Published during Friday. A significant rise in prices two months ago was erased last month. Europe is still suffering from deflation. The see-saw is expected to continue this month, with a rise of 0.5% in prices. Note that th figure is compiled from the reports of the different German states.

CPI: Published on Friday at 10:00 GMT. Together with Germany’s release, the all-European inflation numbers will also come out. They are reported in an annual format. Consumer prices are expected to be steady with an annual rise of 1%. Core CPI is predicted to edge up from 1.1% to 1.2%.

US Dollar: Policy Tightening and Mounting Risk Build Bullish Pressure

Written by dailyfx.com

Fundamental Outlook for US Dollar: Bullish

 

-    The Federal Reserve hikes the discount rate, adds to speculation that Fed Funds rates will soon follow

-    Risk trends compete with interest rate forecasts for the dollar’s attention

-    Was the Dollar’s late-week rally for naught or has the currency seen a critical extension of a larger trend?

There is a reason the Federal Reserve decided to announce the first hike in the discount rate since 2006 after the market’s close this past Thursday. With a precedence of jittery responses to stimulus withdrawal in other countries (most notably the hikes to China’s reserve ratio); the central bankers were concerned such a move could trigger a panic among speculators born from the fear that the fuel for 2009’s rally was disappearing. However, after an initial rally from the greenback immediately after the release; the currency tempered its gains. As much as the fundamental and interest rate backdrop is improving for the US; underlying risk trends are still the primary guide for the benchmark currency. Yet, this connection hasn’t condemned the dollar’s rally. A comparison between the Dollar Index and the Dow Jones Industrial Average these past few weeks shows something quite unusual: a positive correlation. Has something fundamentally changed for the currency or in the global financial market?

Recent history has shown us quite clearly that the US dollar has been an ideal safe haven and funding currency. Yet, if that were the case, we would expect the build in risk appetite and carry that rising capital markets should have supported this past week to weigh the greenback down. Yet, there are a few unusual factors at play. First, for the undercurrent in sentiment, while some of the growth-linked benchmarks have indeed trended higher; this is more a stabilization and reversal of the late-January / early-February slump in risk appetite than a true rebound in optimism. There are many reasons to be concerned over the stability of financial markets and the nascent economic recovery. From the start, the potential for expansion and returns inherent in the otherwise tepid recovery from the worst financial crisis in modest history already reasons asset prices are misaligned. However, the conviction of greed (risk appetite) can keep trends in place longer than fundamentals would otherwise support. What is needed is a catalyst to break this conviction. The greatest threat to stability is without doubt the situation in Greece. While concerns over the nation’s deficit seem to have subsided; the threat to broader Euro Zone is undeniable. All that is needed is a spark in sentiment for this situation to once again erupt. In the meantime, China could once again roil the markets (and perhaps set off the dominos in Europe). The Far East market is set to open for the first time in over a week; and this epicenter for speculation has yet to price in the most recent reserve ratio hike, not to mention the other developments.

Another consideration is the influence that the hike in the deposit form this past week can have on the dollar. There are two distinct impressions this move has. First, this move helps normalize the monetary policy in the US and moves up the time table for an eventual hike to the Federal Funds rate. Another consideration is that this move has the same implications for risk appetite that the increase in the Chinese reserve ratio had: this is a move that is withdrawing the same stimulus that has facilitated the market’s recovery over the past year. We have already seen the immediate reaction to this data; but don’t expect this development to have already played itself out.

As for scheduled event risk on the docket; there are many big ticket names. However, don’t expect a second reading of GDP, durable goods or consumer confidence numbers to distract the market from the bigger, more pressing themes already in motion. - JK

Euro Forecast Unclear Amidst Greek Debt Crisis, S&P 500 Indecision

Written by dailyfx.com

Fundamental Forecast for Euro: Bearish

- Euro starts the week on the defensive on Greek Debt Crisis

- Surprise Fed rate hike pushes Euro to fresh yearly low

- Euro/US Dollar Technical Forecast remains firmly bearish

The Euro finished the week almost exactly unchanged against the US Dollar, sustaining a drop to fresh year-to-date lows before bouncing into Friday’s close. Indecisive financial markets made price action especially hard to predict and kept the Euro in a choppy range until the US Federal Reserve surprised markets and raised borrowing costs for banks on Thursday. At that moment the US Dollar surged higher and forced the Euro key support at $1.3600 in mere minutes. Yet traders showed little interest in pushing the US  currency to further highs, and a late rally in the US S&P 500 left the EUR/USD firmly above 1.36 through time of writing. Relatively limited economic event risk in the week ahead suggests price action may remain choppy, and volatility expectations have likewise fallen ahead of what traders predict will be muted currency moves. Of course, any and all developments in the ongoing Greek sovereign debt crisis could quite easily force substantive volatility in the Euro Zone currency.

Top foreseeable event risk will come on German IFO Business Climate and Unemployment Change data due Tuesday and Thursday of the upcoming week. The former is likely to show that business sentiment remained relatively unchanged through February—approximately in-line with German ZEW Economic Sentiment survey data. Markets predict that Unemployment Change numbers will nonetheless show the domestic economy shed jobs at the fastest rate since June, 2009 through the same period. Countervailing consensus forecasts underline the level of indecision surrounding economic outlooks and arguably explain the deadlock in financial markets. It may take an especially large surprise in either of these reports to force big moves in European asset classes and the Euro itself. Currencies will otherwise continue to respond to developments in broader financial market risk appetite—especially as it relates to the ongoing Greek debt saga.

The recent meeting of the Euro Zone Economic and Financial Affairs Council stated that the EU would take measures to preserve the financial stability of the single-currency area, but the lack of specific details leaves much undecided. The council stated that Greece would have one month to essentially get its accounts in order before the EU decided on any further action. Rumors that the Greek government may seek to raise funding through a 10-year bond sale has many in fixed income markets especially spooked; a failed auction would only augment fears of Greek insolvency. Thus traders should keep a special eye out for any rhetoric related to said topic and any other developments in Greece. As the worst crisis since the adoption of the Euro, Greek debt problems threaten to derail confidence in the common currency and send it significantly lower against major counterparts. Barring any major developments in said situation, however, the Euro/US Dollar pair may see another relatively uneventful week of trading. – DR

EURUSD Outlook |  Written by ActionForex.com |  Feb 20 10 16:25 GMT | 

EUR/USD dropped further to as low as 1.3443 last week but recovered just ahead of 61.8% retracement of 1.2329 to 1.5143 at 1.3404. With 4 hours MACD crossed above signal line, initial bias is neutral this week and some sideway trading might be seen first. Nevertheless, short term outlook will remain bearish as long as 1.3788 resistance holds and another fall is still expected. Below 1.3443 will target 161.8% projection of 1.5143 to 1.4217 from 1.4578 at 1.3076 next. However, considering bullish convergence condition in 4 hours MACD and RSI, break of 1.3788 will indicate that a short term bottom is formed and stronger rebound should be seen to near term trend line resistance (now at 1.4001) before staging another fall.

In the bigger picture, three wave rise from 1.2329 is treated as consolidation to fall from 1.6039 only and should have completed at 1.5143 already. Fall from 1.5143 is tentatively treated as resumption of the whole down trend form 1.6039 and should target a new low below 1.2329. Break of 1.4217 resistance is needed to invalidate this bearish view. Otherwise, we' expect 1.5143 to continue even in case of strong rebound.

In the long term picture, long term up trend from 2000 low of 0.8223 has made an important top at 1.6039 in 2008. Subsequent price actions are so far viewed as a correction only, in form of three waves. First wave has completed at 1.2329 while secondly should have completed at 1.5143. Fall from 1.5143, as the third wave of correction, is in progress and should extend to 1.1639 support, and possibly further to 100% projection of 1.6039 to 1.2329 from 1.5143. Nevertheless, we'd expect strong support from 61.8% retracement of 0.8223 to 1.6039 at 1.1209 to conclude the correction and bring another long term up trend.

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