Week in FX: EUROPE Oct. 9-14

Friday’s strong North American data is providing the backdrop for a more supportive risk environment. But, its the G20 meeting that brings hope and optimism to resolving the Euro-zone crisis. Let’s hope investors will be full of the same optimism come Monday morning.

In reality, until there is a clear resolution to the European situation, the risks to global growth remain to the downside. France and Germany believe that they are moving closer on a comprehensive package to stabilize the Eurozone. The package includes maximizing the force of the EZ bailout fund and finding a solution for Greece.

Some of the currency swings have investors believing that a ‘stability road map will be implemented soon’. Both France and Germany hold the key to resolving the all important question of how to boost the EFSF fund without demanding further contributions from other nations. It will be an interesting weekend of debates.

Below are some of the highlights of the week:


  • EUR: After Sarkozy and Merkel’s Sunday meeting both Germany and France again pledged plans to stabilize Europe by end-October. Both leaders reached an agreement on a comprehensive package of measures to stabilize the euro area by the 3 November G20 meeting. This includes recapitalization of European banks.
  • EU: France, Belgium and Luxembourg approved a plan to bail out a troubled European bank (Dexia).
  • FR and ITL: French and Italian IP surprised to the upside. Italian IP rose +4.3%, m/m, in August vs. the consensus forecast for +0.2%. French IP rose +0.5%, m/m, above the expectation for a -0.7% fall. Gains in both countries were broad based.
  • SEK: Swedish IP fell -3.1%, m/m in August, much weaker than the consensus expectations for -1.5%. With prior downward revisions the annual growth decreased to +5.6%, y/y, and short of the forecast for 10%. Euro growth core deterioration bodes ill for Swedish manufacturing.
  • NOK: Norway’s inflation rose to +1.6%, y/y, in September from +1.3%. Analysts believe inflation will start to gradually decrease at the turn of the year. Market expects Norges Bank to remain on hold this year.
  • UK: Manufacturing remains weak in August. Overall industrial production rose +0.2%, m/m, in August, above the consensus forecast for a -0.2% fall, primarily driven by gains in the mining and oil sectors. Meanwhile, manufacturing production fell -0.3%. With negative revisions to July data, manufacturing has now been contracting for three months in a row. Continued weakness going into next year is likely to spark expectations of a possible further extension of QE
  • UK: RICS house price index was unchanged at -23 in September versus the consensus expectation of a deterioration to -24.
  • SEK: Headline inflation moderated to +3.2%, y/y, from +3.4%. Core-inflation moderated to +1.5%, y/y, from +1.6%, and in line with consensus forecasts. Euro core deterioration in growth obviously will have an ill adverse effect on the manufacturing intensive Swedish economy.
  • EUR: Slovakia parliament rejects enhanced Euro rescue fund first vote. The vote ‘was used as a power tool amid a coalition crisis and the whole of Europe was taken hostage’. Government collapsed. Second vote passed end of week. All members now ratified the amendments to EFSF fund.
  • EUR: Mid-week risk gains saw the EUR rally +1% and AUD +1.7% in the week hours on Wednesday, buoyed by the increasing prospects for a Euro bank recapitalization plan alongside better than expected European IP data.
  • EUR: Euro area IP rose +1.2%, m/m, in August, much higher than the forecast for a -0.8% decline, thanks to upside surprises in France and Italy.
  • EUR: In the periphery, Ireland reported a strong +4.4%, m/m gain in production.
  • FT: Reported that a new round of stress tests will be performed assuming haircuts on sovereign bonds and forcing banks to raise capital in the market or accept government infusions if they are deficient relative to a new, higher capital ratio (+9%).
  • UK: Jobless claims rose +17.5K last month after a +19K rise in August. The trend points to continued deterioration in UK labor market conditions. From June to August, employment fell -178K (worst three-month fall in two-years). Unemployment rate is now a new high of +8.1%.
  • ITL: Successfully auctioned 14,10, and 7-year bonds, with bid-to-cover ratios in line with recent averages. ECB bought Italian and Spanish paper, but not in sufficient size to influence yields lower. Stability in Italian financing costs is important for maintaining upward trajectory in European financial market sentiment.
  • UK: Trade deficit narrowed to £7.8b in August from £8.2b, beating the consensus forecast for £8.8b. Analysts note that the UK economy might be beginning to capitalize on the weaker pound.
  • FT: Reported that EM countries are working on ways to contribute money to expand the lending capacity of the IMF, by either funding an SPV or lend to the IMF by buying special bonds to shore up credit markets.
  • EU: EZ headline inflation came in line with the initial estimate at +3.0%, y/y. The ‘core’ was a tad higher than expected at +1.6%, y/y vs. +1.5%. The increase was driven by changes in methodology and the VAT rise in Italy. Higher core and headline inflation continues to create uncertainty with ECB policy expectations.






  • AUD and GBP present their Monetary Policy Minutes
  • Inflation data come from the USD, CAD and GBP
  • Business Outlook Surveys and Economic Sentiment reports come from CAD and EUR (Germany)
  • Investors gets a peek at CNY’s GDP on Monday
  • US TIC data comes our way Tuesday followed by Building and Existing Home Sales
  • GBP records how Retail Sales is doing on Thursday

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell