Yesterday’s trade saw EUR/USD within the range of 1.1567-1.1796. The daily low has also been the lowest level since November 12th 2003. The pair closed at 1.1630, losing 1.35% on a daily basis.
At 8:20 GMT today EUR/USD was up 0.04% for the day to trade at 1.1636. The pair touched a daily high at 1.1649 at 7:40 GMT.
Fundamentals
Euro zone
Euro area consumer inflation – final estimate
The final annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably confirmed the preliminary rate at -0.2% in December, which was reported on January 7th. If confirmed, this would be the first drop in the Harmonized Index of Consumer Prices since October 2009 and the most considerable one since September 2009, when inflation was reported at -0.3%. In November the final HICP reading pointed to annual inflation rate of 0.3%, which matched the preliminary estimate. According to the preliminary data, in December the negative inflation rate was influenced by a drop in energy prices (-6.3%, compared to -2.6% in November), while prices remained steady for food, alcohol and tobacco (0.0%, compared to a 0.5% gain in November) and non-energy industrial goods (0.0%, compared to a 0.1% dip in November). The only upward pressure in December came from cost of services, which rose 1.2% year-on-year.
The index shows the change in price levels of a basket of goods and services from consumer’s perspective and also reflects purchasing trends. The main components of the HICP are food, alcohol and tobacco (accounting for 19% of the total weight), energy (11%), non-energy industrial goods (29%) and services (41%).
The HICP is used to evaluate and compare inflation rates between Member States, according to Art. 121 of the Amsterdam’s Agreement and directives by the European Central Bank (ECB), in order the latter to achieve price stability and the implementation of monetary policy. The HICP aggregates are calculated as a weighted average of each member state’s HICP components.
In case the HICP slowed down more than anticipated, thus, further distancing from the 2% inflation objective set by the ECB, this would mount selling pressure on the euro, because of the greater possibility of expanding the set of monetary policy measures in order to stimulate economic activity.
The final annualized Core HICP for December probably matched the preliminary core inflation estimate, which was reported at 0.8% on January 7th. In November the final annualized core inflation in the Euro area was registered at 0.7%. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the final inflation data at 10:00 GMT.
United States
Consumer prices
The annualized consumer inflation in the United States probably continued to decelerate in December, falling to 0.7%, according to market expectations, from 1.3%, registered in November. If so, this would be the lowest rate since October 2009, when an inflation of -0.2% was reported. In monthly terms, the Consumer Price Index (CPI) probably dropped 0.4% in December, after another 0.3% fall in the prior month. If so, this would be the largest monthly decrease in six years. In November energy prices dropped 4.8% year-on-year, as prices of energy commodities lowered 10.2%, gasoline prices went down 10.5% and cost of fuel oil declined 10.1%. Food prices, on the other hand, rose at an annualized rate of 3.2% in November, while cost of electricity was up 2.8%, according to the report by the Bureau of Labor Statistics.
The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.
The CPI includes sales taxes, but excludes income taxes, costs of investments such as stocks and bonds and sales prices of homes.
The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained steady at 1.7% in December. It is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependence on the time of the year. The Core CPI is a key measure, because this is the gauge, which the Federal Reserve Bank takes into account in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile and the central bank’s tools are slow-acting. In case, for example, prices of gas surge considerably, this could lead to a high rate of inflation, but the central bank will not take action until this increase affects prices of other goods and services.
If the CPI tends to distance from the inflation objective, set by the Federal Reserve and considered as providing price stability, or 2%, this will usually reduce the appeal of the US dollar.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
Industrial production, Capacity utilization
Industrial output in the United States probably remained flat in December compared to November, following a 1.3% expansion in November compared to October. The latter has been the fastest growth rate in more than four years, driven by expansion in manufacturing and utilities production. In November the output of utilities rose 5.1%, as colder-than-usual weather for the month increased demand for heating. Manufacturing production expanded 1.1% in November, with the indexes for both durables and nondurables gaining more than 1%, while the output of every major industry group rose or remained unchanged. The index of mining activity, on the other hand, fell 0.1% during the same period.
The index of industrial production reflects the change in overall inflation-adjusted value of output in the three major sectors mentioned above. The index is sensitive to consumer demand and interest rates. As such, industrial production is an important tool for future GDP and economic performance forecasts. Those figures are also used to measure inflation by central banks as very high levels of industrial production may lead to uncontrolled levels of consumption and rapid inflation. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. A larger-than-projected increase in the index would usually boost demand for the US dollar.
The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.
In addition, Capacity Utilization Rate in the country probably decreased to 80.0% in December from 80.1% in November. The latter has been the highest utilization rate since March 2008, when a rate of 80.4% was reported. This indicator represents the optimal rate for a stable production process, or the highest possible level of production in an enterprise, in case it operates within a realistic work schedule and has sufficient raw materials and inventories at its disposal. High rates of capacity utilization usually lead to inflationary pressure. In general, higher-than-anticipated rates tend to be dollar positive.
Reuters/Michigan Consumer Sentiment Index – preliminary estimate
The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States continued to improve in January. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably rose to 94.1 during the current month from a final value of 93.6 in December. If so, this would be the highest index value in almost eight years. The survey encompasses about 500 respondents throughout the country. The index is comprised by two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.
The sub-index of current economic conditions decreased to a final reading of 104.8 from a preliminary 105.7 in December, after a month ago it stood at 102.7. The sub-index of consumer expectations came in at a reading of 86.4, up from a preliminary value of 86.1 in December and a final 79.9, registered in November.
In case the gauge of consumer sentiment showed a larger improvement than projected, this would boost demand for the greenback. The preliminary reading is due out at 14:55 GMT.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.1664. In case EUR/USD manages to breach the first resistance level at 1.1762, it will probably continue up to test 1.1893. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1991.
If EUR/USD manages to breach the first key support at 1.1533, it will probably continue to slide and test 1.1435. With this second key support broken, the movement to the downside will probably continue to 1.1304.
The mid-Pivot levels for today are as follows: M1 – 1.1370, M2 – 1.1484, M3 – 1.1599, M4 – 1.1713, M5 – 1.1828, M6 – 1.1942.
In weekly terms, the central pivot point is at 1.1868. The three key resistance levels are as follows: R1 – 1.1982, R2 – 1.2123, R3 – 1.2237. The three key support levels are: S1 – 1.1727, S2 – 1.1613, S3 – 1.1472.
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