Yesterday’s trade saw EUR/GBP within the range of 0.7783-0.7832. The pair closed at 0.7799, losing 0.20% on a daily basis.
At 7:15 GMT today EUR/GBP was up 0.13% for the day to trade at 0.7810. The pair touched a daily high at 0.7812 at 7:16 GMT.
Fundamentals
Euro zone
Italian industrial output
Annualized industrial production in Italy probably contracted for a fifth consecutive month, at a pace of 2.7% in November, according to the median forecast by experts, following another 3.0% drop in October. The latter has been the most considerable annual decline since August 2013, when output shrank 4.6%. Italian seasonally adjusted index of industrial production probably rose 0.1% in November compared to a month ago, neutralizing the 0.1% dip in October. The index reflects the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case output shrank more than anticipated, this would have a limited bearish effect on the common currency. The National Institute of Statistics (Istat) is to release the official industrial data at 9:00 GMT.
Legal test
An adviser to the EU Court of Justice is to determine whether the European Central Bank’s Outright Monetary Transactions (OMT) program overstepped the law in a non-binding opinion, Bloomberg reported.
“If the opinion is favorable and the conditions attached are not too restrictive, it would open the way to QE by the ECB right now,” said Pierre-Henri Conac, a professor of financial-markets law at the University of Luxembourg, cited by the same media.
The OMT program could pass the test if it were limited and placed under specific conditions, such as banning debt cuts and unlimited purchases of bonds of selected member states, according to the German court. In 2014 the latter said that the OMT may be in violation of European Union rules, as it amounts to economic policy that stands outside the ECB’s mandate. The OMT plan could also be considered as monetary financing of governments, in the courts view.
United Kingdom
Consumer inflation
The cost of living in the United Kingdom probably lowered, with the annual rate of inflation probably slowing down to 0.7% in December, according to the median estimate by experts, from 1.0% in November. If so, this would be the twelvefth consecutive month, when the annualized Consumer Price Index remained below the 2-percent objective, set by the Bank of England. Novembers rate of inflation has been the lowest since September 2012, as prices of motor fuel and food dropped.
In November transport prices of motor fuel fell 5.9% year-on-year, while food costs were 1.7% lower. Additional downward pressure to annual inflation came from miscellaneous goods and services (-0.8%), clothing and footwear (-0.2%) and transport (-0.2%). Meanwhile, costs of education surged 10%, followed by alcoholic beverages and tobacco (up 4%) and housing, water, electricity and gas (up 3.3%), according to the report by the Office for National Statistics.
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 annualized core consumer price inflation slowed down to 1.2% in November from 1.5% in October and September. This marked the fifth consecutive month, during which core inflation stood below the 2% target. Novembers rate has also been the lowest since December 2008, when the annual core inflation was registered at 1.1%. 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.
In case the annual CPI slowed down more than expected, thus, further distancing from the inflation objective of 2.0%, this would certainly reduce the appeal of the sterling. The Office for National Statistics (ONS) will publish the official CPI report at 9:30 GMT.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7805. In case EUR/GBP manages to breach the first resistance level at 0.7826, it will probably continue up to test 0.7854. In case the second key resistance is broken, the pair will probably attempt to advance to 0.7875.
If EUR/GBP manages to breach the first key support at 0.7777, it will probably continue to slide and test 0.7756. With this second key support broken, the movement to the downside will probably continue to 0.7728.
The mid-Pivot levels for today are as follows: M1 – 0.7742, M2 – 0.7767, M3 – 0.7791, M4 – 0.7816, M5 – 0.7840, M6 – 0.7865.
In weekly terms, the central pivot point is at 0.7812. The three key resistance levels are as follows: R1 – 0.7876, R2 – 0.7942, R3 – 0.8006. The three key support levels are: S1 – 0.7746, S2 – 0.7682, S3 – 0.7616.
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