Euro zone price discounting drives growth in activity

By Jonathan Cable

LONDON (Reuters) – Price discounting drove growth in all of the euro zone’s major economies in March, helping business activity increase at its fastest rate for nearly a year, a survey showed on Tuesday.

New orders came in at their fastest rate since May 2011 and the survey found that companies have now been cutting prices for three years, although not as sharply in March as before.

Nevertheless, the Markit survey provided some welcome news for the European Central Bank (ECB) just weeks after it embarked on a trillion-euro asset-purchase program.

The private sector in Germany, Europe’s largest economy, grew at its fastest pace in eight months and although it also increased in France, the pace of expansion slowed.

Italy’s service industry returned to growth, fuelling hopes of an economic recovery there after years of on-off recession, and Spain’s expanded at its fastest pace since August.

“France is lagging behind a little bit but the others are doing pretty well. It just shows that quantitative easing was working even before the ECB bought a single bond,” Soctiabank’s Alan Clarke said.

“It’s vindicating the ECB for what it is doing.”

Official data showed euro zone consumer prices fell again in March as expected but that the decline was the smallest this year. Industrial producer prices declined by less than expected in February from a year earlier.

“Encouragingly for the ECB, there was further evidence in the services survey that deflationary tendencies are easing in the euro zone,” IHS Global Insight’s Howard Archer said.

Markit’s final March Composite Purchasing Managers’ Index (PMI), seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3. A reading above 50 implies growth.

The financial information firm said the PMIs pointed to first quarter growth of 0.3 percent, slightly less than the 0.4 percent predicted in a Reuters poll taken last month. [ECILT/EU]

Price-cutting also helped drive up service industry activity at its fastest pace in eight months. The March services PMI rose to 54.2 from 53.7, just below the flash 54.3 estimate.

With recovery gathering steam and confidence growing because of the ECB’s QE program, service companies were at their most optimistic since May 2011. The business expectations sub-index came in at 64.8 compared with February’s 64.1.

Sentix research group’s index tracking morale among investors and analysts in the euro zone climbed to its highest level since August 2007 this month as they took heart from the European Central Bank’s bond-buying program.

(Editing by Louise Ireland)

Euro-Area Price Drop Slows as Draghi Implements QE Plan

(Bloomberg) — A slump in euro-area consumer prices eased in March, offering respite to the European Central Bank after it ramped up stimulus to fend off a deflation threat.

The annual rate of inflation in the 19-nation bloc climbed to minus 0.1 percent from minus 0.3 percent in February, the European Union’s statistics office in Luxembourg said on Tuesday. That’s the fourth consecutive reading below zero and in line with the median estimate in a Bloomberg survey. Unemployment fell to 11.3 percent in February from a revised 11.4 percent the previous month.

The Frankfurt-based ECB pledged to buy 1.1 trillion euros ($ 1.2 trillion) of assets including government bonds through September 2016 to fend off deflation. ECB President Mario Draghi, who pushed the program through against resistance from Germany, has already signaled that he expects victory and presented forecasts showing inflation back in line with the bank’s mandate of just below 2 percent in 2017.

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“The inflation rate is set to rise again over the course of the year, mainly because oil prices will start increasing at some point as well,” said Marco Wagner, an economist at Commerzbank AG in Frankfurt. “The latest ECB measures might of course have an effect as well, but it’s probably minor.”

Bundesbank President Jens Weidmann, who opposed the program, has argued that consumer prices would pick up anyway as the drop in energy costs adds to previous ECB action in stimulating the economy.

Core Inflation

Core inflation in the euro area slowed to 0.6 percent in March from 0.7 percent, according to today’s report. Energy prices fell 5.8 percent after a 7.9 percent decline in February.

Economists surveyed by Bloomberg forecast euro-area consumer prices will remain unchanged this year before rising 1.2 percent in 2016. The ECB also projects stagnating prices for 2015 and sees inflation at 1.5 percent in 2016 and 1.8 percent in 2017.

More from Europe Stocks Are Little Changed, Heading for Quarterly Advance

In Spain, where the inflation rate has been below zero for nine months, the slump in consumers prices moderated in March after hitting a record low of minus 1.5 percent in January. In Germany, the rate turned positive for the first time in three months as a recovery in the region’s largest economy gathers momentum.

To contact the reporter on this story: Stefan Riecher in Frankfurt at [email protected]

To contact the editors responsible for this story: Fergal O’Brien at [email protected] Jana Randow, Paul Gordon

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Euro Heads for Fourth Quarterly Drop

(Bloomberg) — The euro is set for the biggest quarterly slide versus the dollar since its inception and options trading indicates there’s more weakness to come.

In addition to a Federal Reserve that’s on track to raise interest rates, Europe’s 19-nation currency is being hobbled by the European Central Bank’s monetary stimulus and Greece’s struggle to secure bailout funds and avert a default. The euro slid on Tuesday even as a report showed Germany’s unemployment rate fell to a record.

The shared currency weakened against all but two of its 16 major peers this year as the ECB started its unprecedented 1.1 trillion-euro ($ 1.2 trillion) debt-purchase program. Across the Atlantic, output data may be understating the health of the American economy and employment numbers are a more reliable indicator, Fed Vice Chairman Stanley Fischer said at a conference on Monday.

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“The market is ignoring the improving fundamentals in the euro zone and focusing more on the policy divergence, with the expansion of the ECB’s balance sheet being an ongoing negative,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The Greek situation continues to cause consternation,”

The euro fell 1 percent to $ 1.0729 as of 10:58 a.m. in London, after sliding 0.5 percent on Monday and losing 11 percent this year. It shed 1 percent to 128.76 yen, pushing its drop since Dec. 31 to 11 percent, the most since September 2011.

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German Jobs

Joblessness in Germany, Europe’s largest economy, fell to 6.4 percent in March from 6.5 percent last month, according to a Tuesday report. That was the latest in a set of data signaling business and investor confidence is recovering in the euro area amid plunging energy prices and a weaker currency.

The recovery signs haven’t stopped options traders from becoming more bearish on the euro.

They’re paying a 2.29 percentage-point premium for three-month options to sell the euro against the dollar over contracts for purchases, the most since Feb. 23 based on closing prices. That’s up from a 2015 low of 1.19 percentage point reached on Jan. 12, 25-delta risk-reversal rates show.

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Greek Prime Minister Alexis Tsipras, who came to power in January on a platform of ending austerity, was locked in negotiations with creditors over the terms of the country’s 240 billion-euro bailout.

He sought consensus in parliament for his efforts after proposals to reform the nation’s finances failed to satisfy his European partners. The standoff has left Greece dependent upon ECB loans and at risk of an exit from the euro.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Paul Armstrong

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Euro Bears at Risk on Sticky CPI- Outlook Remains Bearish Below 1.10 –

Euro-Zone Consumer Price Index (CPI) to Contract at Slower Pace.

Core Inflation to Hold Steady at Annualized 07% for Second-Month.

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Trading the News: Euro-Zone Consumer Price Index (CPI)

The Euro-Zone’s Consumer Price Index (CPI) may dampen the bearish sentiment surrounding the Euro and spur a short-term rebound in EUR/USD should the report highlight sticky price growth across the monetary union.

What’s Expected:

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Why Is This Event Important:

Indeed, signs of stabilizing price pressures may encourage the European Central Bank (ECB) to soften its dovish outlook for monetary policy, and President Mario Draghi may talk down expectations for a further expansion in the easing cycle as the region gets on a more sustainable path.

Expectations: Bullish Argument/Scenario

The pickup in business sentiment along with the expansion in private-sector consumption may generate sticky price growth in the euro-area, and a positive development may heighten the appeal of the single currency as market participants scale back bets for additional monetary support.

Risk: Bearish Argument/Scenario

However, falling input prices paired with the ongoing contraction in private-sector lending may encourage European firms to further discount consumer prices, and a dismal inflation print may trigger a short-term decline in the exchange rate as the ECB keeps the door open to implement more non-standard measures.

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How To Trade This Event Risk(Video)

Bullish EUR Trade: Headline & Core Inflation Exceed Market Expectations

  • Need green, five-minute candle following the release to consider a long EUR/USD trade
  • If market reaction favors a bullish Euro trade, buy EUR/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish EUR Trade: Euro-Zone CPI Highlights Greater Threat for Deflation

  • Need red, five-minute candle to favor a short EUR/USD trade
  • Implement same setup as the bullish Euro trade, just in opposite direction

Read More:

Scalp Webinar: USD Defends Support Slope- Bulls at Risk Ahead of NFP

AUD/USD Retail FX Flips Net-Long; March Low (0.7559) on Radar

Potential Price Targets For The Release

EUR/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • String of failed attempts to close above the 1.1000 region may highlight a near-term topping process in EUR/USD especially as the RSI struggles to retain the bullish momentum from earlier this month.
  • Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
  • Interim Support: 1.0620 (61.8% expansion) to 1.0640 (38.2% expansion)

Impact that the Euro-Zone CPI report has had on EUR during the last release

January 2015 Euro-Zone Consumer Price Index (CPI)

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The Euro-Zone’s Consumer Price Index (CPI) slipped at an annual pace of 0.3% in February after contracting 0.6% the month prior, while the core rate of inflation held steady at an annualized 0.6% for the second consecutive month. Despite the ongoing slack in the euro-area, the European Central Bank’s (ECB) quantitative easing (QE) program may continue to shore up the ailing economy as the President Mario Draghi adopts an improved outlook for the monetary union. The initial reaction in the Euro was short-lived as EUR/USD struggled to hold above the 1.1225 region, and the single currency struggled to hold its ground throughout the North American trade as the pair ended the day at 1.1181.

— Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail [email protected] Follow me on Twitter at @DavidJSong.

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Euro tumbles through $US1.09

The euro has tumbled through the $ US1.09 level to strike a fresh 11.5-year low as the ECB nears the launch of its massive stimulus package and strong US jobs data raises the possibility of a US rate hike soon.

The single currency sank to $ US1.0845 as European markets closed on Friday – the lowest since September 2003 – after strong non-farm payrolls data increased expectations that the US Federal Reserve may move to begin hiking interest rates in the coming months.

But with the ECB to begin its 1.1-trillion-euro quantitative easing stimulus on Monday, most eurozone stock markets pushed higher.

Frankfurt’s benchmark DAX 30 index of top companies closed up 0.41 per cent to 11,550.97 points after reaching an intra-day record high of 11,600, while in Paris the CAC 40 rose 0.02 per cent to 4,964.35 points.

On the downside, London’s FTSE 100 index ended the day down 0.71 per cent to 6,911.80 points, having posted a record closing high on Thursday after the ECB announced its bond purchases will start next week.

The euro tanked against the US dollar after the US Labor Department said on Friday that the US economy pumped out a stronger-than-expected 295,000 net new jobs in February.

Analyst Craig Erlam said the good jobs numbers ‘will only feed into expectations for a rate hike from the Federal Reserve in June.’

‘The rally in the dollar immediately after the release clearly supports this view …,’ he added.

Higher interest rates will make the dollar attractive, while the ECB’s stimulus program will flood the economy with euros and weaken its value.

Some analysts predict the eurozone unit could reach parity against the dollar amid a growing policy divergence between the ECB and the Fed.

The Frankfurt-based central bank is battling deflation risks across the 19-nation eurozone, while its US counterpart exited its own QE program in October, and is mulling an interest rate hike later this year amid optimism over the American economy.

‘Diverging policy stances between the Fed and ECB look set to persist for some time, pushing the euro towards parity over the medium-term as the search for yield drives euro area investors to increase exposure to overseas assets,’ RIA Capital Markets analyst Nick Stamenkovic told AFP.

However, Rabobank analyst Jane Foley cautioned that the Fed was mindful of weak US inflation.

‘The ECB has indicated that it is prepared to throw the kitchen sink in with its attempts to beat deflationary risk and the resultant weakness of euro/dollar will undoubtedly help with the policy’s success.’

She added: ‘We do not think that the Fed will hike (rates) until December, based on weak inflation. Consequently we think that euro/dollar will avoid parity.’

But Wall Street stocks traded mostly lower Friday as investors bet on a quicker rate hike.

In late morning trading, the Dow Jones Industrial Average slumped one per cent to 17,954.20 points.

The broad-based SP 500 creeped up 0.12 per cent to 2,101.04, while the tech-rich Nasdaq Composite Index lost 0.74 per cent to 4,945.77.

Tech giant Apple traded one per cent higher after an early boost of 2.2 per cent on news it will join the prestigious blue-chip Dow index, replacing ATT. ATT was down 0.87 per cent as noon neared.

In European equities trading, Britain’s mining sector was hit particularly hard by sliding iron ore prices.

At the close Fresnillo sank 5.16 per cent to 698.50 pence, Randgold Resources dropped 5.27 per cent to 4,581 pence and Anglo American slid 2.45 per cent to 1,136 pence.

‘The FTSE 100 may have posted a new record close last night but (today’s) trade is being overshadowed by another drop in iron ore prices,’ said Trustnet Direct analyst Tony Cross.

‘Heavyweight mining stocks are languishing at the foot of the table as the price moved below $ US60 per tonne into territory where it is difficult to make any margin.’

Asian markets diverged Friday despite encouraging gains in New York.

Tokyo stocks soared 1.17 per cent thanks to a weaker yen and Seoul closed 0.73 per cent higher.

But Hong Kong shed 0.12 per cent and Shanghai slid 0.22 per cent, with investors subdued a day after China lowered its economics growth target for 2015.

ECB won't cut deposit rate below -0.2 percent – Reuters poll

(Reuters) – The European Central Bank won’t cut its deposit rate below the current -0.2 percent, according to 19 of 21 euro area money market traders polled by Reuters on Monday.

The ECB made the rate negative – effectively charging euro area banks to park money with it – in June and then chopped it further below zero in September.

But the large take-up of targeted long-term ECB loans last week has been widely construed as a sign lending to private businesses is on the rise.

In a separate Reuters survey, economists predicted private lending would show an increase for the first time in nearly three years in data due on Thursday. (ECONEZ)

That survey of 23 traders also predicted the ECB would allot 120.0 billion euros at its weekly operation compared with 142.4 billion euros last week.

Banks are expected to take 20.0 billion euros at the ECB’s three-month tender, down from 22.3 billion euros last time.

(Reporting by Deepti Govind; Polling by Hari Kishan and Siddharth Iyer; editing by John Stonestreet)

FOREX-Euro weakens as long-term investors sell, Greece concerns on radar

* Euro down after best week against dollar since 2011

* Dollar bulls cautious after dovish steer from Fed last week

* ECB president’s speech, Greece in focus

By Anirban Nag

LONDON, March 23 (Reuters) – The euro fell on Monday, unable to build on its best weekly performance since late 2011 versus the dollar, on concerns about whether Greece can reach agreement with creditors to secure fresh funds.

European Central Bank President Mario Draghi was due to address a European Parliament committee, with Greece and the progress of the ECB’s quantitative easing programme, which has pushed the euro lower recently, high on the agenda.

Greek Prime Minister Alexis Tsipras’ meeting with Chancellor Angela Merkel on his first official visit to Berlin will also be in focus. At a European Union summit on Friday, Merkel said Greece would only receive fresh funds to ease a cash crunch once creditors approve a comprehensive list of reforms Athens has promised but yet to produce.

With officials in Brussels, Berlin and the ECB now acknowledging the risk that Greece could leave the euro zone, this meeting will be closely watched for signs of a breakthrough or hardening of positions.

After rising last week as the dollar was hit by comments from the U.S. Federal Reserve, the euro was down 0.4 percent at $ 1.0785 in early European trade on selling by long-term investors.

The euro’s losses against the dollar, helped the dollar index rise 0.25 percent to 98.159.

“Concerns about Greece are keeping investors cautious about the euro,” said Yujiro Goto, currency analyst at Nomura. “Investors have unwound some of their long dollar positions and they are putting them back. Medium term, euro/dollar depreciation is clear.”

Bets in favour of the U.S. dollar fell to a three-month low in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. Net dollar longs fell below $ 40 billion for the first time in 12 weeks.

Speculators cut long positions in the dollar last week after markets pushed back expectations of a U.S. rate hike and after Fed Chair Janet Yellen said that the Fed “noted that export growth has weakened, probably the strong dollar is one reason for that.”

St Louis Federal Reserve President James Bullard said on Monday that the dollar index is not far from fair value but it is unclear how much more the U.S. currency will strengthen against the euro.

Morgan Stanley said in a note that the dollar is likely to remain soft especially if incoming data surprises on the downside.

“We recommend selling dollar/yen with a target of 115.50 and a stop at 121.20 yen,” they said. Dollar/yen was flat at 120.06 yen on Monday.

(Editing by Susan Fenton)

euro rate – Yahoo Search Results

The weaker euro, which could approach parity with the US dollar, is making the European Central Bank’s task of kickstarting the eurozone economy easier. Officially, the ECB has no exchange rate target. “In the current context, pushing down the euro is probably the only means the ECB has for pushing up inflation,” Natixis economist Sylvain Broyer told AFP. The ECB has rolled out a series of …

Weaker euro works in ECB's favour, but for how long?

Frankfurt (AFP) – The weaker euro, which could approach parity with the US dollar, is making the European Central Bank’s task of kickstarting the eurozone economy easier.

But the feel-good effects could turn sour if the euro’s decline in value becomes too pronounced too quickly, analysts said.

Officially, the ECB has no exchange rate target. But by making eurozone goods cheaper to export and pushing up prices of imports, the weaker euro is positive for the single currency area’s economy.

“In the current context, pushing down the euro is probably the only means the ECB has for pushing up inflation,” Natixis economist Sylvain Broyer told AFP.

The ECB has rolled out a series of unprecedented measures in recent years to try to prevent the euro area from slipping into deflation, a dangerous downward spiral of falling prices that is difficult to break once it has set in.

But the euro has fallen by nearly 20 percent against the dollar in the past six months and central banks start to feel uncomfortable when changes in the exchange rate are too rapid and too volatile.

For the moment, the ECB does not appear to be alarmed.

President Mario Draghi recently estimated that the euro’s decline should contribute “significantly” in bringing area-wide inflation back up towards the ECB’s target of just below 2.0 percent.

In February, consumer prices in the 19-country bloc fell by 0.3 percent.

But in a scenario drawn up by the ECB’s team of economists, an excessively weak euro could push eurozone inflation back above the 2.0-percent target by 2017. Such a scenario is all the more realistic because it was calculated using an exchange rate of $ 1.04 per euro.

– Caught off guard –

The extent of the euro’s recent decline appears to have caught the ECB off guard: its most recent official forecasts were compiled using an average exchange rate of $ 1.14 this year and $ 1.13 in 2016 and 2017.

Nevertheless, the euro could fall even further against the dollar as a result of the ECB’s policy of quantitative easing, or widescale bond purchases, said Commerzbank economist Joerg Kraemer.

At the beginning of this month, the ECB embarked on a massive 1.14-trillion-euro bond purchase programme, at a rate of 60 billion euros per month until September 2016. The idea is to pump liquidity into the financial system.

“The debt purchase programme is essentially a programme of currency devaluation,” said Kraemer.

By purchasing eurozone sovereign bonds en masse, the securities become less attractive for investors in other regions, who divert their money to other countries, driving down the euro.

The mere speculation that such a QE programme might be in the offing set the euro on its downward path as long ago as last summer.

– Credibility at stake –

Nevertheless, “it’s important for the ECB to preserve its currency’s credibility” in the eyes of investors, said Broyer at Natixis.

With QE only having just started, it is premature to start talking about when the programme might begin to be phased out again, said one central bank official, speaking on condition of anonymity.

But internal debate within the ECB’s governing council could become fierce in the future, especially as the most recent economic indicators suggest that recovery is already beginning to regain momentum.

Powerful ECB governors, such as the head of the German central bank or Bundesbank, Jens Weidmann, view the QE programme as unnecessary or even dangerous.

“If at the start of next year, growth is on track and inflation is rising again, the ECB’s biggest difficulty will be to resist pressure for an early end to QE or a scaling down of the bond purchases,” said Gilles Moec of Bank of America-Merrill Lynch.

Weakening Against U.S. Dollar, Renminbi Lead Euro’s Decline

  • By
  • Brian Blackstone

Roughly half of the euro’s decline between May 2014 and February were driven by the weakening of its exchange rate against the U.S. dollar and Chinese renminbi, the European Central Bank said in its economic bulletin Thursday.

In a study included in the bank’s economic bulletin (pages 42-44) the ECB notes that, between the euro’s May 2014 peak and Jan. 23 of this year, the euro weakened about 10% against a broad basket of currencies. The euro, it said, “has stabilized in recent weeks with the return of capital inflows following the ECB’s announcement of its expanded asset purchase program after the 22 January 2015 Governing Council meeting.”

Of that drop, “half the fall in the (nominal effective exchange rate) was accounted for jointly by the US dollar and the Chinese renminbi,” the ECB said. Each rose about 20% versus the euro during that time frame, with the dollar “supported by expectations of further diverging monetary policies in the euro area and the United States, market uncertainty in an environment of declining commodity prices and heightened geopolitical tensions,” the ECB said.

The Swiss franc’s sharp rise against the euro, after the Swiss central bank abandoned its currency ceiling for the franc’s value against the euro in January, accounted for about 10% of the broad decline in the euro, according to the ECB’s estimates. The euro also weakened against the yen, sterling and many emerging market currencies.

These declines were offset somewhat by the sharp rise in the euro against the Russian ruble, and the eurozone currency also strengthened against the Swedish krona. “The euro also remained relatively stable against the currencies of commodity exporting countries, which came under downward pressure as a result of declining oil prices, as well as against currencies of central and eastern European EU countries,” the ECB said.

The report doesn’t project where things will go from here, which is, of course, the central question for financial markets. Nevertheless, the ECB suggested recent movements weren’t unusual.

The euro’s effective exchange rate “has experienced large swings since the outbreak of the global financial crisis. From a longer-term perspective, such large movements are not unusual and had also been observed before the crisis,” the ECB said.

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