Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.1262-1.1366. The pair closed at 1.1335, gaining 0.41% on a daily basis.

At 8:42 GMT today EUR/USD was up 0.22% for the day to trade at 1.1342. The pair touched a daily high at 1.1353 at 8:35 GMT.

Fundamentals

Italian unemployment

The rate of unemployment in Italy probably reached a new record high level in December at 13.5%, according to the median forecast by experts, from 13.4% during the prior month. The number of unemployed people dropped 0.2% in November compared to October to reach 3.457 million. At the same time, employment in the country was 0.1% lower to 55.5% to reach 22.31 million persons. Youth unemployment rate climbed 0.6% to a new all-time high of 43.9% in November, according to the National Institute of Statistics.

In case the rate of unemployment increased more than anticipated, this might have a bearish effect on the common currency. Istat is to report the official rate at 9:00 GMT.

Euro region harmonized consumer inflation – preliminary estimate

The preliminary annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably decelerated to -0.5% in January, according to the median estimate by experts. If so, this would be the lowest inflation level since July 2009, when the final rate was reported at -0.6%. In December the final HICP reading pointed to annual inflation rate of -0.2%, which matched the preliminary estimate, as the drop in energy prices was the main driver behind the slowdown. The largest downward pressures to impact the regions annual inflation were recorded for fuels for transport (-0.53%), heating oil (-0.17%) and telecommunications (-0.08%). At the same time, the largest upward pressure came from restaurants & cafés and rents (0.11% increase each) and prices of tobacco (+0.07%), according to the report by Eurostat.

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 Harmonized Index of Consumer Prices (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, as this suggests a need for stimulus in order to spur economic activity.

The preliminary annualized Core HICP for January probably increased at a rate of 0.6%, slowing down from 0.7% in December, November and October. If so, this would be the lowest annual core inflation on record, with the current all-time low level being at 0.7%. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the preliminary inflation data at 10:00 GMT.

Euro region rate of unemployment

At the same hour, Eurostat will announce the rate of unemployment in the Euro region for December. It probably remained at 11.5% for the seventh consecutive month, while also being the lowest since September 2012. In November the lowest unemployment rates were recorded in Austria (4.9%) and Germany (5.0%), while the highest rates were in Greece (25.7%) and Spain (23.9%).

The EU 28 unemployment rate was reported at 10.0% in November, down from 10.1% in comparison with October and from 10.7%, registered in November 2013. According to data by Eurostat, 24.423 million people in the EU28, of whom 18.394 million were in the Euro area, were unemployed in November. Compared to October the number of people unemployed decreased by 19 000 in the European Union and rose by 34 000 in the Euro zone. Compared to November 2013 unemployment was lower in the EU28 (a decrease by 1.487 million), while unemployed people in the Euro area were 522 000 fewer.

Unemployed are considered to be all persons aged between 15 and 74, who have not been hired during the survey period, have been actively seeking employment during the past four weeks and are able to accept any job proposition right away or in two weeks time. A drop in unemployment in the region would support the single currency.

United States

Gross Domestic Product – preliminary estimate

The preliminary estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 3.3% in the fourth quarter of the year. The final GDP estimate for Q3, reported on December 23rd, pointed to an annual growth of 5.0%. The latter has been the highest growth rate since Q3 2003, which reflected an upturn in consumer spending and investment. Real personal consumption expenditures rose 3.2% in the third quarter, compared to a 2.5% increase in Q2. Real non-residential fixed investment increased 8.9% in Q3, following an increase of 9.7% in the second quarter. Real exports of goods and services were up 4.5% in the third quarter, compared to an increase of 11.1% in Q2, while real federal government consumption expenditures and gross investment expanded 9.9%, after a decrease of 0.9% in the second quarter, according to data by the US Department of Commerce.

In quarterly terms, US economy probably expanded 1.0% in Q4, following a final growth rate of 1.4% in Q3, which was reported on December 23rd.

The report on GDP is closely watched by traders, operating in the Foreign Exchange Market, as they will look for higher rates of growth as a sign that interest rates may follow the same direction. Higher interest rates will attract more investors willing to purchase assets in the US, which will increase demand for the US dollar. If an economy is experiencing a robust rate of growth, the benefits will eventually affect the end consumer, because of the increased likelihood of spending. Furthermore, through increased consumer expenditures the economy has the potential to expand even more. In case the preliminary GDP estimate outpaced expectations, this would certainly heighten the appeal of the greenback. The preliminary data is due out at 13:30 GMT.

Employment Cost Index

Employment Cost Index (ECI) in the United States probably rose 0.6% during the fourth quarter of the year compared to Q3, following another 0.7% gain in Q3 compared to Q2. This index measures the change in the price of labor, defined as compensation per employee hour worked. It shows changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. The ECI is considered as an indicator, reflecting cost pressures within companies that could trigger price inflation for finished goods and services. A larger than expected rate of increase would generally provide a certain support to the US dollar. The Bureau of Labour Statistics is to release the quarterly data at 13:30 GMT.

Reuters/Michigan Consumer sentiment index

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 final reading of the corresponding index, which usually comes out two weeks after the preliminary data, probably confirmed the preliminary index value of 98.2, reported on January 16th. If so, this would be the highest index value since January 2004. In December the gauge of confidence came in at a final reading of 93.6. 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.

According to preliminary data, the sub-index of current economic conditions increased to a reading of 108.3 in January from a final 104.8 in December, after in January 2014 it came in at 96.8. The sub-index of consumer expectations came in at a reading of 91.6, up from a final value of 86.4 in December and a final 71.2, registered in January 2014.

In case the gauge of consumer sentiment showed a larger improvement than projected, this would boost demand for the US dollar. The final reading is due out at 15:00 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.1321. In case EUR/USD manages to breach the first resistance level at 1.1380, it will probably continue up to test 1.1425. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1484.

If EUR/USD manages to breach the first key support at 1.1276, it will probably continue to slide and test 1.1217. With this second key support broken, the movement to the downside will probably continue to 1.1172.

The mid-Pivot levels for today are as follows: M1 – 1.1195, M2 – 1.1247, M3 – 1.1299, M4 – 1.1351, M5 – 1.1403, M6 – 1.1455.

In weekly terms, the central pivot point is at 1.1332. The three key resistance levels are as follows: R1 – 1.1551, R2 – 1.1894, R3 – 1.2113. The three key support levels are: S1 – 1.0989, S2 – 1.0770, S3 – 1.0427.