Week in FX: Europe Nov. 6-11

This is a big weekend in Rome, and with a partial US and Canadian holiday, it’s not surprising to see short covering taking place going into the weekend. However, this weeks trading headache may reappear as early as Monday if the ECB is missing in action. Its “critical” that the central bank give the perception of being aggressive, if not, then this week’s nightmare of market risk liquidation will again reoccur.

Italy represents the single biggest threat to the Euro currency union and this week, that threat loomed large. Bond yields rose to unsustainably high levels, suggesting that Italy would need to undertake some type of default. If that should occur, the regional headache will not be contained, there will be global repercussions. The market has a lot to digest over the next few days. Goldman’s is confident that the worst has passed and expect the EUR to retest 1.40 again.

Below are some of the highlights of the week:


  • Greek Prime Minister agrees to step aside to allow a national unity government to form. The unity government will approve measures relating to the EU rescue and then lead Greece to elections.
  • Greece passed the baton onto Italy, allowing them to become the more important source of concern.
  • ECB council member Mersch (in La Stampa) that the ECB could stop buying sovereign debt if a country wasn’t pursuing reforms, emphasizing the importance of passing legislation.
  • Market begins to focus on the “fundamental” problems in EU. Data remains problematic, with German IP weaker than expected. Production fell -2.7%, m/m in September, below the -0.9%mom expected. Capital goods production was weak, down -4.7%. This suggests that German activity has slowed significantly at the end of Q3. What about Q4?
  • Not helping the region EZ retail sales also disappointed with a -0.7%, m/m fall.
  • Norway manufacturing production rose +0.8%, m/m, compared to the +0.0% consensus. Trade ties with Germany and Sweden suggests that slowdown remains a risk. Norges Bank has postponed any rate hikes to next year.
  • CHF inflation dipped back into “deflationary territory” of -0.1%, y/y, while core declined to +0.5%. Price pressures have eased faster than the SNB projected last month.
  • CHF: Hildebrand stated that the SNB is “ready for more measures”.
  • GRD: Former ECB VP Papademos is elected new PM. He is expected to guide approval of the EU rescue plan through parliament, allowing the next aid tranche to be disbursed, and pave the way for elections.
  • UK IP was flat in September. Market consensus forecast was for a +0.1% rise. The growth was less than the Office for National Statistics forecasted, +0.4%. Heads up for further downward revisions to the Q3 GDP estimate. Coupled with a weak October PMI print suggests poor numbers for Q4.
  • UK: RICS house price balance at -24% indicates a soft market last month.
  • SNB Vice Chairman Jordan reiterated the central bank’s commitment to defend the current EURCHF floor at all cost. He expects the CHF to weaken over time.
  • Italian bond yields soared through +7% after margins raised on Wednesday. Today see yields aggressively correct lower, with the 10-year yield down another -23bp to +6.64%, about 82bp off their highs.
  • Prime Minister Berlusconi offered to resign after the passage of key legislation. This action should reduce risks of a political impasse that would delay approval of reforms promised to the EU.
  • UK trade deficit widened substantially in September to -£9.8b from -£8.6b. Exports grew only +0.2%, m/m while imports rose +3.8%.
  • UK: BRC shop price index dropped to +2.1%, y/y, from +2.7%.
  • SEK: Industrial production surprised strong rising +1.3%, m/m, in September, above consensus for a -0.5%, fall. However, industrial orders declined for a second consecutive month. Coupled with weaker PMI surveys in Sweden and Germany suggest a bleaker outlook.
  • SEK: Riksbank’s minutes of the October meeting were broadly in line with the dovish policy statement accompanying the rate decision.
  • UK: BoE leaves policy unchanged (+0.5%). However, analysts believe that weaker than expected IP, combined with a softer October PMI suggest there is a potential to increase QE next quarter.
  • Market are expecting the passing of Italian reform legislation this weekend and the ECB to return to the fold and increase bond purchases on Monday.
  • EUR: Italian Production fell sharply -4.8%, m/m, in September, worse than consensus of -3.0% and reversed last months gain +3.9%. French IP fell -1.7%, m/m. If we include Germany then the growth momentum in the core appears poor.
  • SEK: Inflation surprised soft. Headline inflation fell to +2.9%, y/y, in October, below consensus for an unchanged read. The core fell even more sharply to +1.1% from +1.5%. The reading allows the Riksbank to slash rates next month if need be.
  • NOK: Inflation printed in line with consensus, moderating slightly to +1.4%. Core inflation was unchanged at +1.2%, y/y.
  • SPN: GDP was flat in Q3 and in line with expectations.


Other Links:

ASIA Week in FX
Politics and Fixed Income trump FX



  • Retail sales data comes to us from NZD, USD and GBP
  • GBP, CAD and USD release inflation reports
  • Monetary policy minutes and statements come from JPY and AUD
  • JPY delivers growth data
  • EUR will acknowledge German ZEW economic sentiment
  • PPI data is released in USD and NZD
  • Claimants figures are observed in GBP and USD
  • USD finishes their week with Building permits and Philly Fed


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