Italy’s budget troubles pushed the shared currency around once more while the franc climbed to the top spot. Can it stay this way this week?
Medium-tier data from top euro zone nations (Nov. 29)
Another batch of leading indicators are on this week’s docket for the euro zone as the likes of Germany, France, Italy, and Spain will be printing their growth and inflation figures.
Germany will get the ball rolling with the release of its preliminary CPI, followed by the French consumer spending report. The former could print another 0.2% uptick, but the recent slump in crude oil might put a drag on energy costs.
France will also be printing its preliminary Q3 GDP and might show another 0.4% expansion. The Spanish flash CPI due a few minutes later could slump from 2.3% to 2.0% on a year-over-year basis.
Flash CPI estimates (Nov. 30, 10:00 am GMT)
With the ECB asset purchase program already approaching its end, market participants are now looking ahead to the central bank’s tightening time line. And since their mandate is to maintain price stability, inflation figures tend to provide strong clues on when a rate hike might happen.
The flash CPI readings due before the end of this week might reflect slightly weaker inflationary pressures. The headline figure could dip from 2.2% to 2.1% for November while the core reading could hold steady at 1.1%, but you have to remember that crude oil tumbled for almost the entire month.
Even though there wasn’t much on the Swissy’s schedule last week, this European currency sneaked its way to the top spot, even outranking the safe-haven dollar and yen as risk-off flows dominated.
Perhaps it’s the persistent geopolitical risks stemming from Brexit and Italy’s debt that led traders out of the pound and euro onto the safe-haven alternative in the region, which was the Swiss franc. Besides, the U.S. dollar had some trade concerns to deal with, leaving the franc as a better option.
An extension of this market theme throughout this week could continue to prop the Swiss franc higher versus its peers while a return in risk-taking might unwind these gains.
Last Week’s Price Review
The euro is turning in another mixed performance this week (as of 2 pm GMT). The euro is currently a net loser, though.
And as you can see below, the euro’s price action was also a bit mixed. There are even clear instances of diverging price action, which means that the euro was rather vulnerable to opposing currency price action.
With that said, there were instances of uniform price action on the euro. And the first such instance happened on Monday since the euro trended broadly higher (except against the Swissy).
And the apparent catalyst was ECB Member Francois Villeroy de Galhau’s comment that:
“If we were to have a no-deal scenario, which we don’t wish, we are prepared on the European side.”
“It will be probably very detrimental for the British economy, but on the European side, the effect on GDP growth is limited and there [are] no financial stability issues.”
The next instance of uniform price action is when the euro got slapped broadly lower during Tuesday’s London session, thanks to defiant comments from Deputy PM and 5-Star leader Luigi Di Maio with regard to Italy’s budget.
The euro’s price action became mixed after that, though, but it’s worth pointing out that the euro recovered against the comdolls, while continuing to bleed out against the rest of its peers.
And while we’re on the topic of Italy’s budget, the E.U. rejected Italy’s budget (again) on Wednesday, but that didn’t trigger a uniform reaction from the euro, probably because the rejection was widely expected. After all, Italy didn’t really change its draft budget.
Moving on, the euro also got slapped lower on during Thursday’s London session when the latest ECB meeting minutes were released, likely because the minutes noted that:
“[M]embers considered that the uncertainties related to global factors remained prominent, and the risks related to the external environment were assessed to be tilted to the downside.”
However, follow-through selling was practically non-existent on most pairs and the euro quickly began trading sideways on the majority of pairs.
And for the final instance of clear and uniform price action on the euro is when EUR pairs got whupped during Friday’s London session, thanks to a bunch of disappointing PMI reports.
As for some deets, France’s manufacturing PMI, for example, fell from 51.2 to a 26-month low of 50.7. Germany’s manufacturing PMI is even more disappointing since it dropped from 52.2 to a 67-month low of 51.6.
And for the Euro Zone as a whole, the manufacturing PMI reading fell from 52.0 to a 30-month low of 51.5, while the services PMI reading eased further from 53.7 to a 25-month low of 53.1.
Incidentally, the euro was actually a net winner before those PMI reports were released, so EUR bulls can shake their fists at (while EUR bears can sing their praises to) those disappointing PMI reports.
The Swiss Franc
After three weeks of being a net loser, the Swissy will finally be part of the winners’ club since the Swissy is currently THE top-performing currency of the week (as of 2 pm GMT).
As usual, EUR and CHF pairs had roughly similar price action. However, the Swissy clearly outperformed the euro on Monday, very likely because the euro was enjoying some safe-haven flows due to the risk-off vibes.
In addition, the Swissy didn’t get smacked as much because of Di Maio’s comments on Tuesday, which allowed the Swissy to widen the gap against the euro.
Moreover, the Swissy didn’t get whupped as hard because of the disappointing Euro Zone PMI reports on Friday.