Forex Market: EUR/USD trading forecast for Monday

Friday’s trade saw EUR/USD within the range of 1.2425-1.2492. The pair closed at 1.2452, losing 0.12% on a daily basis, while gaining 0.50% for the whole week.

Fundamentals

Euro zone

Manufacturing data by Markit

Spanish Manufacturing Purchasing Managers Index (PMI) probably showed a slight improvement in November, coming in at a reading of 52.7 from 52.6 in October. If so, this would be the highest index level since August, when the PMI stood at 52.8. It would also be the 12th consecutive month, when the PMI remains in the zone above 50.0, indicating optimism (increasing activity). The official reading is to be published at 8:13 GMT on Monday.

Activity in Italys sector of manufacturing was probably little changed in November, with the corresponding PMI rising to 49.4, as expected by experts. In October the PMI plunged to 49.0, which has been the lowest reading since May 2013, when the gauge was reported at 47.3. Markit Economics is expected to release the official data at 8:45 GMT.

Frances final manufacturing PMI probably remained in the zone of contraction during November, while confirming the preliminary PMI reading of 47.6, which was reported on November 20th. If confirmed, this would be the lowest PMI reading since August, when it was reported at 46.9. The official PMI is due out at 8:50 GMT.

The final reading of German manufacturing PMI probably confirmed the preliminary value for November, with the index coming in at 50.0. In October the final PMI stood at 51.4, down from a preliminary value of 51.8, or the highest level since August. Markit will release the official reading at 8:55 GMT.

The final manufacturing PMI in the Euro zone probably also confirmed the preliminary value in November, with the index remaining at 50.4. In October the final PMI was registered at 50.6. The PMI reflects the performance of the manufacturing sector in the Euro area and is based on a survey of 3 000 manufacturing companies. National data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These member states together account for almost 90% of Euro zones manufacturing activity. The Manufacturing Purchasing Managers Index is comprised by five individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%), as the Delivery Times index is inverted, so that it moves in a comparable direction.

In case the final PMI readings exceeded expectations, the common currency would receive a boost. The official manufacturing data for the Euro region as a whole is scheduled to be released at 9:00 GMT.

Italian Gross Domestic Product – final estimate

The final estimate of Italys annual Gross Domestic Product (GDP) probably confirmed the preliminary estimate, pointing to a 0.4% contraction in the third quarter of the year, according to the median forecast by experts. In Q2 economy shrank at an annualized pace of 0.2%, according to final data, released on August 29th.

On a quarterly basis, Italian economy probably contracted 0.1% in Q3, matching the preliminary GDP estimate and following another negative growth rate of 0.2% during the second quarter. The last time Italian economy expanded was in the second quarter of 2011, when it grew 0.2%. According to provisional data by the National Institute of Statistics (Istat), on the production side, the agriculture and industrial sectors contributed negatively to economic growth in Q3, while in terms of demand, there was a negative contribution from domestic demand, which was partially offset by a positive contribution from exports.

In case a slower-than-projected rate of growth was reported, this would have a negative effect on the single currency. The National Institute of Statistics (Istat) will release the final GDP data for Q3 at 9:00 GMT.

ECB policy meeting in focus

On Friday it became clear that the annual harmonized consumer inflation in the Euro zone slowed down to a five-year low, which may urge the European Central Bank to expand its unprecedented stimulus program. Annual rate of inflation in the region was reported at 0.3% in November, which met expectations. Persistently low inflation is causing pressure on the central bank to expand its set of measures, which aim to stimulate economic activity. There is a chance that ECB President Mario Draghi may introduce more pessimistic forecasts in a statement following the meeting on policy, scheduled on December 4th. He has said he intends to raise inflation ”as fast as possible.”

On the other hand, ECB Vice President, Vitor Constancio, said earlier this week that the best moment to consider new measures is next quarter, when the impact of current measures can be gauged, Bloomberg reported.

The central bank has already begun purchasing covered bonds and asset-backed securities, as it projects to expand its balance sheet to the level it had at the beginning of 2012.

United States

Manufacturing PMI by Markit – final estimate

The final estimate of the Manufacturing Purchasing Managers Index probably confirmed the preliminary reading of 54.7 in November, reported on November 20th. If confirmed, this would be the lowest PMI reading since January, when the final gauge was reported at 53.7. In October the final seasonally adjusted PMI stood at 55.9. According to preliminary data by Markit, weaker rates of output and new business growth were the main negative influences on the headline PMI figure in November. Latest data pointed to the slowest expansion of manufacturing production for ten months, with a number of survey respondents citing less favourable demand conditions.

“Incoming new work also increased at the weakest pace since January, partly reflecting a reversal in export sales volumes. Although only modest, the rate of decline in new orders from abroad was the most marked for 17 months. Some survey respondents commented on the strengthening dollar exchange rate, as well as more subdued underlying export market business conditions.”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). Lower-than-expected PMI readings would cause a bearish impact on the US dollar. The preliminary data by Markit Economics is due out at 14:45 GMT on Monday.

ISM Manufacturing data

Activity in United States’ manufacturing sector probably slowed down in November, with the corresponding manufacturing PMI coming in at a reading of 58.0, according to expectations, from 59.0 in October. Last month new orders increased sharply and employment rose for the sixteenth consecutive month. The New Orders Index was reported at 65.8 in October, an increase from a reading of 60.0 in September, indicating growth in new orders for the 17th consecutive month. The Employment Index climbed to 55.5, from a reading of 54.6 in September.

The Manufacturing Purchasing Managers’ Index (PMI) is a compound index, which represents manufacturing activity in 18 different industries. It is comprised by four equally-weighted components: seasonally adjusted employment, seasonally adjusted production inventories, seasonally adjusted new orders and supplier deliveries. The index is based on a survey of 300 purchasing managers.

Participants can either respond with “better”, “same”, or “worse” to the questions about the industry, in which they operate. The resulting PMI value is measured from 0 to 100. If the index shows a value of 100.0, this means that 100% of the respondents reported an improvement in conditions. If the index shows a value of 0, this means that 100% or the respondents reported a deterioration in conditions. If 100% of the respondents saw no change in conditions, the index will show a reading of 50.0. Therefore, readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case the PMI slowed down more than anticipated, this would certainly have a bearish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.2456. In case EUR/USD manages to breach the first resistance level at 1.2488, it will probably continue up to test 1.2523. In case the second key resistance is broken, the pair will probably attempt to advance to 1.2555.

If EUR/USD manages to breach the first key support at 1.2421, it will probably continue to slide and test 1.2389. With this second key support broken, the movement to the downside will probably continue to 1.2354.

The mid-Pivot levels for Monday are as follows: M1 – 1.2372, M2 – 1.2405, M3 – 1.2439, M4 – 1.2472, M5 – 1.2506, M6 – 1.2539.

In weekly terms, the central pivot point is at 1.2447. The three key resistance levels are as follows: R1 – 1.2538, R2 – 1.2623, R3 – 1.2714. The three key support levels are: S1 – 1.2362, S2 – 1.2271, S3 – 1.2186.