Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7955-0.8002. The pair closed at 0.7959, losing 0.32% on a daily basis.

At 7:18 GMT today EUR/GBP was up 0.12% for the day to trade at 0.7968. The pair touched a daily high at 0.7970.

Fundamentals

Euro zone

German and Euro zone ZEW gauges of Economic Sentiment

The gauge of economic sentiment in Germany probably improved to 0.5 in November, according to the median forecast by experts. In October the index entered into negative territory for the first time since November 2012, slipping to a reading of -3.6. The indicator has been in decline since December 2013, when it stood at 62.0.

The ZEW (Zentrum für Europäische Wirtschaftsforschung) economic expectations index is published monthly. The study encompasses up to 350 financial and economic analysts. The indicator reflects the difference between the share of analysts, that are optimistic and those, that are pessimistic about the expected economic development in Germany over the next six months. A positive value indicates that the proportion of optimists is larger than that of pessimists. A ZEW reading of -100 suggests that all analysts are pessimistic about the current developments and expect economic conditions to deteriorate. A ZEW reading of 100 implies that all analysts are optimistic about the current situation and expect conditions to improve. A ZEW reading of 0 indicates neutrality.

The index of current assessment in Germany probably dropped to 1.8 in November from 3.2 in the prior month. If so, this would be the lowest index value since June 2010, when the indicator was reported at -7.9.

The ZEW Economic Sentiment index in the Euro zone probably climbed to 4.3 this month from 4.1 during October. The latter has been the lowest index reading since November 2012, when the indicator stood at -2.6.

In case the gauge of sentiment exceeded expectations, this would certainly have a positive impact on the common currency. The official data is scheduled to be released at 10:00 GMT.

ECB Draghi statement

European Central Bank President Mario Draghi underscored that government bond purchases is a tool, which the central bank could use in case economic outlook deteriorate. “Unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” Draghi said in Brussels on Monday in answer to a question during his testimony to lawmakers at the European Parliament, as reported by Bloomberg.

“2015 needs to be the year when all actors in the euro area, governments and European institutions alike, will deploy a consistent common strategy to bring our economies back on track,” ECB President noted. “Monetary policy has done a lot. It can do more if structural reforms are implemented. It can’t do everything.”

United Kingdom

Consumer inflation

The cost of living in the United Kingdom probably increased, with the CPI being at 1.3% in October from a year ago, according to the median estimate by experts. If so, this would be the tenth consecutive month, when inflation rate remained below the 2-percent inflation objective, set by Bank of England. In September the annualized consumer inflation was reported at 1.2%, down from 1.5% in August. Septembers rate of inflation has been the lowest in five years, due to a decline in prices of food and motor fuels. Food prices dropped at an annualized rate of 1.5% in September, while prices of motor fuels plunged 6.0%. The largest downward contributions to the change in the CPI 12-month rate between August and September came from transport costs, which fell 2.4%, mostly due to sea fares and air fares, according to the report by the Office for National Statistics. Cost of recreation and culture was 0.1% lower, due to prices of technological goods such as laptop and tablet computers, computer accessories, games consoles and computer games.

The CPI is the main measure of inflation in the UK for macroeconomic purposes and forms the basis of the inflation target set by the government. Every month about 120 000 samples are made, examining the change in prices of about 650 products. They represent the “market basket” of goods and services, on which the index is based.

Key categories in the consumer price index are Transport (accounting for 16.2% of the total weight) and Housing, Water, Electricity, Gas and Other fuels with a 14.4% share. Recreation and Culture accounts for 13.4%, Restaurants and Hotels – 11.4% and Food and Non-alcoholic Beverages – 11.2%. The CPI also encompasses Miscellaneous Goods and Services (9.6%), Clothing and Footwear (6.5%), Furniture, Household Equipment and Maintenance (6.1%). Alcoholic Beverages and Tobacco, Health, Communication and Education comprise the remaining 11.2% of the total weight.

The core consumer price inflation probably accelerated to 1.6% in October compared to the same month a year ago, from 1.5% in September. The latter has been the lowest core inflation since April 2009. The core CPI measures the change in prices of goods and services purchased by consumers, without taking into account volatile components such as food, energy products, alcohol and tobacco.

Higher-than-expected annualized CPI, thus, approaching the inflation objective of 2.0%, would certainly boost demand for the sterling. The Office for National Statistics (ONS) will publish the official CPI report at 9:30 GMT.

BoE rates

Analysts suggest the Bank of England will probably maintain its benchmark interest rate at the current record low level until after the general election in May. 92% of respondents in a survey, conducted by Bloomberg, project a rate hike after the vote. A month ago this percentage was 44%. 8% of respondents forecast that the bank will take action before the election.

“On the basis of the latest BOE forecasts, the position of the two MPC dissenters looks untenable,” said Peter Dixon, an economist at Commerzbank AG in London, cited by the same media. “A rate hike before the summer is unlikely.”

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7972. In case EUR/GBP manages to breach the first resistance level at 0.7989, it will probably continue up to test 0.8019. In case the second key resistance is broken, the pair will probably attempt to advance to 0.8036.

If EUR/GBP manages to breach the first key support at 0.7942, it will probably continue to slide and test 0.7925. With this second key support broken, the movement to the downside will probably continue to 0.7895.

The mid-Pivot levels for today are as follows: M1 – 0.7910, M2 – 0.7934, M3 – 0.7957, M4 – 0.7981, M5 – 0.8004, M6 – 0.8028.

In weekly terms, the central pivot point is at 0.7931. The three key resistance levels are as follows: R1 – 0.8064, R2 – 0.8135, R3 – 0.8268. The three key support levels are: S1 – 0.7860, S2 – 0.7727, S3 – 0.7656.