Week in FX Europe Jan 8-13

The Spanish Bond and Italian Bill auctions were well received this week and gave the single currency hope for at least 24-hours. However, this morning’s final Italian issues of the week have provided the market an ideal opportunity and excuse to sell the currency again. Dealers have been talking about the limited upside of the single currency and that the risk reward favors shorting the EUR. Analysts have been revising their first quarter and year end projections down to an average of 1.22 and 1.15 respectively. So far in 2012 the EUR has weakened against all G10 and major EM currencies. This weakening has been a function of ECB easing and stronger global data, which have boosted risk sensitive currencies across the board. Now we must ask ourselves, can this downward trend outright and on the crosses continue? The ECB’s easing policy has provided a massive liquidity injection (LTRO), lowered the cost of shorting the currency and encouraged the funding of risk trades using the EUR.

Below are some other highlights of the week:


  • EUR: Merkel and Sarkozy turned up the pressure on Greece and institutional creditors; warning that a loan backed by EU and IMF is on hold until Greece enacts budget reforms and concludes talks over reducing its debt load.
  • GER: sold +EUR3.9b t-bills at a negative yield (-0.122%) for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region. Investors are prepared to pay when lending in exchange for the assurance of getting their capital returned.
  • EUR: Mainland data continues to under perform. German November, IP was down -0.6%, m/m, below the -0.5% consensus following weak orders data last week.
  • CHF: Retail Sales rose +1.8%, y/y, in November, well above the consensus forecast for +0.2%. Including the stronger PMI print last week points to “a somewhat less negative growth affect from the stronger currency.” Lack of a deflationary shock will have policymakers keeping the 1.2 floor in place awhile longer yet.
  • CZK: Czech inflation fell slightly to +2.4%, y/y, from +2.5%, below the consensus for a stable reading. The market expects this to “tame the recently more concerned language from the central bank”.
  • FRF: French manufacturing production for November unexpectedly posed a +1.3%, m/m, gain. The October release was also revised higher, to +0.2% from flat. The BoF business sentiment indicator rose to 96 from 95-better data may suggest that the “fears of recession across the region are not materializing.”
  • Fitch rating agency has indicated that a French downgraded is unlikely this year.
  • EUR: Reports indicate that progress is being made towards a private sector participation agreement.
  • SEK: IP dropped -1.9%, m/m/ in November, much worse than the -0.8% expected. The annual growth rate stands at +0.2%, y/y, down from +4.5%. Digging deeper, orders were less encouraging, down -4.8% on the month following a -2.3% drop in October. The manufacturing intensive Swedish economy is becoming more affected by growth concerns in core Europe, making the SEK more vulnerable.
  • NOK: CPI surprised weak at +0.2%, y/y, down from +1.2% in November and below the consensus expectations for +0.5%. Electricity prices were the main downward driver. Analysts note that the inflation reading is much weaker than forecasted by the Norges Bank and would suggest another rate cut.
  • EU: Parliament group objects to a new draft of euro fiscal treaty; it needs more democratic controls and should do more to promote growth.
  • EU Said to Weigh Iran Oil Embargo Exemptions for Member States.
  • ITL: The Social Democrat Party Calls For an exit From EUR and EU.
  • FRF: Rumor denied by French Treasury that the country was to be downgraded within a tight time range.
  • FITCH: Rating agency calls for ECB to step up SMP program and increase its sovereign debt purchases in order to prevent a ‘cataclysmic’ collapse of the currency.
  • GER: Germany auctioned +EUR4b of five-year debt on Wednesday. The new 2/2017’s OBL auction received solid bidding. A total of +EUR9b bids were received, well above the average of +EUR6.8b at the last three-issues, resulting in a cover of 2.84 times.
  • GBP: UK trade deficit widened to -£8.6b in November. With the negative trade balance remaining disappointingly wide suggests a slog to rebalance the UK economy.
  • EUR: German GDP grew +3%, y/y, in 2011, implying a small GDP contraction of -0.1%-0.2%, y/y, in the fourth quarter. Germany is not the European “Atlas”!
  • EUR: Strong demand at auction for Spanish bonds and Italian bills. The Spanish treasury successfully auctioned +EUR9.98b of government bonds, double the amount it had planned. Italy sold 1-year bills at +2.735%, vs. +5.952% on December 12. In total, Italy successfully sold +EUR12b T-bills, meeting its target, and at the same time seeing its borrowing costs plunge in the country’s first debt sale of the year.
  • ECB: After keeping rates on hold, Draghi expressed his satisfaction that the auctions support the view that the provision of 3-year liquidity via LTRO’s is improving the financing backdrop for the peripheral sovereigns. With no indication of a rate change gave the single currency a boost.
  • ECB Press conference: Monetary policy to remain accommodative with policy makers ready to act.
  • ECB: Substantial downside risks to economic outlook persists.
  • ECB: Price developments to remain in line with price stability mandate.
  • ECB: Euro austerity measures are weighing on the output of the region.
  • ECB: Aim is to anchor inflation at or close to +2% over the medium term-it’s required to make its contribution to economic growth and job creation in the region. December inflation was at +2.8%.
  • BoE: they kept rates on hold at +0.5% and kept its target for its asset purchase program at +GBP275m.
  • EUR: Significant risks remain ahead with the Greek PSI talks and the completion of the haircut by months end.
  • EUR: Regional data continue to come in better than feared. The Euro-zones November IP fell -0.1%, m/m. It was better than the -0.3% forecasted. However, negative revisions to the October reading leave growth momentum poor.
  • ITL: Their IP grew +0.3%, m/m beating all expectations of -0.5%.
  • GBP: UK data continue to point to a weak 4Q GDP number. Their IP surprised weak in November, falling -0.7%, below the consensus forecast for -0.1%, m/m. However, manufacturing production happened to be less disappointing, falling -0.2%, m/m.
  • SEK: Inflation decreased to +2.3%, y/y, in December from +2.8%. The core-inflation registered a substantial fall to +0.5% from +1.1% and it is now at its lowest levels in nearly seven-years. Low inflation and weak growth point to a risk of a more dovish Riksbank.
  • ITL: Italian bond auction disappointed after their strong Bill issue. 3-year product saw a relatively poor bid-to-cover ratio of 1.2 times, while the 6-year came in at 1.6. Demand was greater for a smaller +4.25% coupon issue and a total of +EUR4.75b were allotted across all auctions.
  • S&P Rating: Several euro zone countries could face imminent downgrade by S&P as early as today
  • EU: Euro-zone posted an unexpected trade surplus surprise. The market had been forecasting a deficit of-EUR1b; however, the region registered a surplus of +EUR1b. A surge in exports helped the Euro-zone post this major surplus.
  • EU:IIF Says Greece Talks ‘Paused’ After No ‘Constructive’ Response



ASIA Week in FX




  • Business and Economic sentiment comes to us from EUR and NZD
  • Job details are released in AUD, GBP and USD
  • BoC has its O/N rate message along with CAD press conferences
  • Inflation details are announced in CAD,USD, GBP and NZD
  • CNY delivers quarterly growth numbers
  • Manufacturing indexes are broadcasted in CNY and USD
  • Home and Building data relayed in AUD and USD
  • GBP airs its Retail Sales data


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