5 Economic Reports That Affect the Euro

Trading euro-based currency pairs require being up to speed on events that have an impact on the euro, which is no small feat for foreign exchange traders.

At present, the euro is the currency adopted by 19 of the 27 member countries that make up the European Union. These are collectively called the eurozone. As of 2020, the collective GDP of the Eurozone is $18.2 trillion. There are several economic reports that come out of the eurozone annually relevant to the forex market. How does one identify the economic reports that would affect markets?

The European Union is comprised of 27 members. However, only a few are large enough to generate economic reports that move the needle when it comes to currency. The eurozone accounts for over 85% of the GDP of the European Union. In recent times, the eurozone economy has contracted slightly as expected, as a result of the second wave of coronavirus and new lockdowns. However, a survey indicated that the impact was less than predicted earlier in the year. Manufacturers reported solid growth, buoyed by rising exports and a boosting performance from Germany. However, the services industry remained in decline due to restrictions of social distancing.

Therefore, if a trader was looking for trade-worthy reports, then the focus should be on the reports that reflect the economies of these countries. Particularly, reports emanating from Germany and France tend to have more bearing on the minds of forex traders than other countries as they now account for almost half the eurozone’s GDP since the Brexit. 

It is important to bear in mind that reports in this article are standard across different countries. Although, there are a few reports to follow that emphasize key areas of:

• Monetary policy

• Prices and inflation

• Confidence and sentiment

• GDP

• Balance of payments

Prices and Inflation

Inflation is an important factor that affects every currency, including the euro. As a rule of thumb, countries with high levels of inflation relative to other countries would normally see their currency depreciate relative to other countries in order for the prices of goods between countries remain relatively equal. Furthermore, if inflation is higher than expected, the central bank would be forced to raise interest rates to curb inflation.

The principal measure of inflation in the eurozone is the Consumer Price Index (CPI). The CPI calculates the price of a basket of goods the average household is likely to purchase. Typically, traders follow the Core CPI, that is, the normal CPI calculation without energy and food prices. These tend to be more volatile and influenced by short-term demand and supply imbalances, as well as random factors like weather.

Also, to note that although the CPI report has an effect on the euro, its effect is diminished because of the CPI French Flash estimate, eurozone’s CPI Flash Estimate and the German Preliminary CPI are released monthly. 

Confidence and Sentiment

Another way to Monitor economic conditions in the Eurozone is to consider confidence and sentiment reports. The most followed sentiment report is the German ZEW survey. The survey samples the opinions of up to 350 Financial experts where they see the economy in the medium term. So, there are three expected responses either it is positive, negative, or no change. This simple response structure allows the indicator to clearly reflect the opinions of analysts whether it is optimistic or pessimistic.

Monetary policy 

Every currency affected by the monetary policies of its Central Bank. The Central Bank associated with the ECB is the European Central Bank and decisions about interest rates made by the ECB can have a far-reaching effect. The ECB press conferences tend to be the most significant news to follow savings interest rate changes are usually well anticipated in advance by the market. 

The press conference is important as it can give signals about where the ECB president expects the economy. If the ECB president is deemed to be concerned about inflation, this could lead to a future increase in rates, leading to an appreciation of the Euro.

GDP and Economic growth 

The economic growth reports give us an insight into the overall economic output of the Eurozone. GDP is a measure of the economic growth and health of an economy. It is a periodic measure of the value of the total goods and services produced. Generally, growth in GDP is a sign that the economy is strong and healthy. This is good for the currency. 

The Eurozone GDP is a quarterly report prepared by Eurostat. This report tends to move the currency markets, especially if it shows a deviation from the projection of experts before its release.

Balance of payments 

This report measures the way a country interacts with other countries in terms of the trade balance, income payments, and other payments. 

The current account report is a monthly report. A current account Surplus indicates that there is more capital coming into the country than that moving out of the country. This is the case when exports exceed Imports. However, a deficit is quite the opposite. That is, more financial capital leaving the country than flowing in. This is not good for the currency. Because Germany and France are the two largest economies in the eurozone, many traders would focus on the current account report of these two nations.

In conclusion

There are hundreds of indicators that can influence the performance of the euro. Instead of simply listing reports, a closer look at the most relevant reports is useful when trading the euro.