5 Economic Reports That Affect the Euro

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5 Economic Reports That Affect the Euro

Trading euro-based currency pairings necessitates keeping track of developments that might have a significant influence on the euro (also known as the “single currency”), which can be a difficult undertaking for foreign exchange (FX) traders.

Currently, the euro is the official currency of 19 of the European Union’s 27 member nations (EU).These 19 member nations comprise the eurozone, which has a combined GDP of more than $13 trillion (as of 2019).Every year, hundreds of economic data from the eurozone are released that are essential to the foreign currency market; but, how does one determine which economic reports will influence markets?

The European Union comprises 27 members, but only a handful are big enough to create economic reports that have a significant impact on the currency. The eurozone accounts for more than 85% of the European Union’s Gross Domestic Product (GDP) (EU).Three-quarters of the eurozone’s $13.3 trillion GDP is represented by Germany, France, Italy, and Spain. So, if a trader is seeking for trade-worthy studies, the emphasis should be on publications that explain the economies of these nations. Economic news from Germany and France, in particular, are given greater weight by FX traders than those from other nations, owing to the fact that these two countries currently account for roughly 50% of the eurozone’s GDP, according to Brexit.

It is also crucial to note that the reports included in this article are very consistent across nations. However, there are a few guidelines to follow that stress the essential aspects of:

Prices and Inflation

Report Highlights: Eurozone Core CPI, German CPI, and French CPI

Inflation is a significant factor affecting all currencies, including the euro. In general, nations with high levels of inflation compared to other countries will have their currency fall, resulting in approximately similar costs of products across countries. Furthermore, higher-than-expected inflation will cause the central bank to raise interest rates in order to control inflation.

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The Consumer Price Index is the eurozone’s primary gauge of inflation (CPI).This indicator computes the cost of a basket of commodities that a typical household would buy. Traders often adhere to the Core CPI, which is the standard CPI calculation minus energy and food costs. Energy and food costs are notoriously volatile, and they may be substantially impacted by transient supply and demand mismatches, as well as external unpredictable variables like weather, which can mislead the CPI figure.

It is crucial to note that, although the CPI report has an impact on the euro, that impact is mitigated since the eurozone’s CPI Flash Estimate, the French CPI Flash Estimate, and the German Preliminary CPI are issued at the end of every month, around two weeks before the official CPIs. As a result, you should keep a watch on numerous inflation indicators and trends from various areas, particularly CPI statistics from Germany and France.

Confidence and Sentiment

Report to Focus On: ZEW Survey

Looking at confidence and mood surveys is another technique to measure economic circumstances in the eurozone. The German ZEW Survey, issued monthly by the Centre for European Economic Research, is one of the most widely watched mood assessments. The study asks up to 350 financial professionals where they see the economy heading in the long term. Positive, no change, or negative responses are permitted. The ZEW indicator can plainly represent whether professionals and analysts are optimistic or pessimistic about the economy in the longer term due to its straightforward response structure. The study includes polls experts from the eurozone, Japan, the United Kingdom, and the United States.

Analysts, like most important indicators, will have predictions on what the indicator will be. In terms of the ZEW indicator, if the actual ZEW indicator exceeds expectations, the euro will benefit, whilst a ZEW below expectations would put pressure on the single currency. A ZEW value greater than zero implies optimism, whereas a value less than zero indicates pessimism.

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Monetary Policy

Report to Focus On: ECB Press Releases

The monetary policies of each central bank have an impact on each currency. For the euro, this is the European Central Bank (ECB), and ECB interest rate choices may have a considerable influence. In general, ECB press briefings are the most significant news to watch since interest rate adjustments are generally anticipated by the market well in advance. The news release is divided into two sections. It includes:

  1. A prepared statement
  2. An open press question period

The question session tends to produce the greatest currency volatility since the ECB president’s comments may influence markets.

The news conference is important because it may provide insight into where the ECB President expects the economy to go. If the ECB President’s tone looks “hawkish,” which suggests she is worried about inflation, this might lead to further rate rises, which normally pushes the euro to gain. Alternatively, if the wording looks “dovish,” indicating that she feels inflation is moderate, further rate rises will be less probable, and the euro may fall in value.

GDP and Economic Growth

Report to Focus On: Eurozone GDP

The next sort of report that has a big impact on the euro is one that provides information on the eurozone’s total economic output. The GDP, which is a periodic assessment of the total value of goods and services produced, is often used to assess an economy’s economic growth and health. GDP growth, in general, indicates that the economy is robust and healthy, which is good for the currency.

Eurostat publishes a quarterly report on eurozone GDP around two months after the end of the quarter. As you can see, this makes the data somewhat out of date, and since experts have numerous ways for gauging the health of the economy, the GDP is typically forecast ahead of time. Nonetheless, this report is crucial, and its publication has the potential to affect currency markets, particularly if the actual release differs from expectations.

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Balance of Payments

Focused Report: Eurozone Trade Balance, French Current Account, German Current Account

Finally, we’ll examine the balance of payments, more especially the trade balance and current account. The current account is one of three accounts that comprise a country’s balance of payments (the other two being the financial account and capital account).This study assesses how a nation interacts with other countries in terms of trade, income payments, and other payments.

The current account report is a monthly report that is typically sent in the second week of each month. When evaluating this data, a current account surplus suggests that more money is pouring into the nation than is leaving, which is good for the currency. This happens when exports outnumber imports. A current account deficit indicates that more financial capital is leaving the nation than entering. This has a detrimental impact on the currency. Because Germany and France are two of the eurozone’s major economies, many traders will pay close attention to the current account reports for these two countries.

The Bottom Line

Hundreds of economic data may have an impact on the euro. Instead of just listing reports, an in-depth examination of the most significant ones might be more advantageous when trading the euro.

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