Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7811-0.7856. The pair closed at 0.7835, losing 0.14% on a daily basis.

At 7:10 GMT today EUR/GBP was down 0.03% for the day to trade at 0.7832. The pair touched a daily low at 0.7830 at 7:09 GMT.

Fundamentals

Euro zone

Retail Sales

Annualized retail sales in the Euro region as a whole probably rose 0.2% in November, according to the median forecast by experts, after in October sales climbed at a pace of 1.4%. If so, this would be the 12th consecutive period of growth. In monthly terms, retail sales probably increased 0.1% during November, following a 0.4% gain in October. This is a short-term indicator, which provides key information about consumer spending trend on a national scale. In case the index of retail sales rose at a faster-than-projected pace, this would have a bullish effect on the euro. Eurostat is expected to publish the official data at 10:00 GMT.

Economic Sentiment Indicator (ESI)

The final value of the consumer confidence index probably confirmed the preliminary reading of -10.9 in December, which was reported on December 22nd. If so, this would be the highest level of confidence since August, when the indicator stood at -10.0. The final index reading for November came in at -11.6, confirming the preliminary estimate. The indicator measures consumer confidence on a scale of -100 to +100. A reading of -100 suggests a lack of confidence, zero means neutrality and a reading of +100 indicates extreme levels of confidence. The index reflects the level of optimism, which consumers have about economic development in the region. The Business and Consumer Survey is conducted by phone and includes 23 000 households in the Euro zone. The questions asked stress on current economic and financial situation, savings intention and also on expected developments regarding consumer price indexes, general economic situation and major purchases of durable goods. This indicator is one of the five major components, that comprise the Economic Sentiment Indicator (ESI).

The ESI probably improved to 101.2 in December, according to expectations, from a reading of 100.8 in November. The Economic Sentiment Indicator (ESI) is a composite indicator, consisting of five sectoral confidence indicators with different weights: Industrial confidence indicator, Services confidence indicator, Consumer confidence indicator, Construction confidence indicator and Retail trade confidence indicator. The ESI is calculated as an index with mean value of 100.0 and standard deviation of 10 over a fixed standardised sample period.

Higher confidence usually implies greater willingness to spend, including large-ticket purchases, while consumer spending is a key factor behind economic growth. Therefore, in case the ESI climbed more than anticipated, this would cause a certain bullish impact on the euro. The European Commission is expected to release the official ESI reading at 10:00 GMT.

United Kingdom

Bank of England policy decision

At 12:00 GMT Bank of England is to announce its decision on monetary policy. The benchmark interest rate (repo rate) will probably be left unchanged at the record low level of 0.50%. The rate has been at that level since BoEs policy meeting on March 5th 2009. The repo rate applies to open market operations of the central bank with other banks, building societies, securities firms etc. Short-term interest rates are of utmost importance for the valuation of national currencies. Maintaining or reducing the repo rate usually leads to a sell-off in the national currency.

At the same time, the pace of BoE’s monetary stimulus will probably be left without change as well, at GBP 375 billion. The asset-purchasing programme, financed by the issuance of central bank reserves was started on March 5th 2009, while the scale of this programme was increased by GBP 50 billion to the current GBP 375 billion on July 5th 2012. The central bank issues new money in order to purchase gilts from private investors, such as pension funds and insurance companies. In case the scale of monetary stimulus is increased (in order to further spur economic growth), this will usually devalue the local currency.

Bank of England kept its growth forecast of 3.5% in 2014, but revised down by 0.2% its projections for 2015 and 2016 to growth of 2.9% and 2.6%, respectively. The banks Inflation Report, released in November, hinted that borrowing costs may be raised at a later moment than anticipated. According to expectations, the central bank may introduce the first rate hike in almost six years in the spring of 2015, after parliamentary election in May.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7834. In case EUR/GBP manages to breach the first resistance level at 0.7857, it will probably continue up to test 0.7879. In case the second key resistance is broken, the pair will probably attempt to advance to 0.7902.

If EUR/GBP manages to breach the first key support at 0.7812, it will probably continue to slide and test 0.7789. With this second key support broken, the movement to the downside will probably continue to 0.7767.

The mid-Pivot levels for today are as follows: M1 – 0.7778, M2 – 0.7801, M3 – 0.7823, M4 – 0.7846, M5 – 0.7868, M6 – 0.7891.

In weekly terms, the central pivot point is at 0.7810. The three key resistance levels are as follows: R1 – 0.7877, R2 – 0.7924, R3 – 0.7991. The three key support levels are: S1 – 0.7763, S2 – 0.7696, S3 – 0.7649.