Yesterday’s trade saw EUR/USD within the range of 1.1320-1.1450. The daily high has also been the highest level since February 6th, when a high of 1.1488 was recorded. The pair closed at 1.1412, gaining 0.52% on a daily basis.
At 7:55 GMT today EUR/USD was down 0.19% for the day to trade at 1.1389. The pair touched a daily low at 1.1387 at 7:54 GMT.
Fundamentals
Construction output
At 10:00 GMT Eurostat is to report on construction activity in the Euro zone for December. Seasonally adjusted construction output in the region increased 0.1% in November compared to a month ago, following a 1.3% gain in October. In annual terms, output expanded at a pace of 2.2% in November, following another 1.4% increase in October. This indicator reflects how resilient construction sector development is and also provides clues over investment activity. Higher rates of increase in output usually provide a limited support to the common currency, while higher rates of decline usually have the opposite effect.
United States
Producer prices
United States’ annualized producer price inflation probably slowed down to 0.3% in January, according to the median estimate by experts, from 1.1% in December. If so, this would be the lowest producer inflation since October 2013, when the corresponding index (PPI) climbed at an annualized pace of 0.3%. This index reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The Producer Price Index (PPI) differs from the Consumer Price Index (CPI), which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. The simple logic behind this indicator is that if producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. Lower-than-expected producer prices would usually have a bearish effect on the greenback.
The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably decelerated to 2.0% in January from 2.1% in the prior month. The latter has been the largest annual rate of increase in the index since November 2012, when the corresponding annualized PPI gained 2.2%. This indicator is quite sensitive to changes in aggregate demand, thus, it can be used as a leading indicator for economy. However, because of its restrained scope, it is not suitable for future inflation forecasts. The Bureau of Labor Statistics is expected to report the official PPI performance at 13:30 GMT.
Industrial Output, Capacity Utilization Rate
Industrial output in the United States probably expanded 0.3% in January compared to December, following a 0.1% drop in December compared to November. It was the first decline in four months. The latter was a result of a sharp drop in the output of utilities, as warmer-than-usual weather diminished demand for heating.
In December the output of utilities shrank 7.3%, following a revised 4.2% increase in November. Manufacturing output expanded 0.3% in December on a monthly basis, as the production of durable goods increased 0.2%, while the production of non-durable goods was up 0.4%. The output of mining rose 2.2% in December, with much of the strength reflecting increases in oil and gas extraction, according to the report by the Federal Reserve.
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 increased to 79.9% in January from 79.7% in December. In November the utilization rate was registered at 80.0%, or the highest 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.
FOMC Minutes
At 19:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on January 27th-28th. The minutes offer detailed insights on FOMC’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. High volatility is usually present after the publication.
According to extracts from the Federal Reserves latest Press Release: ”The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”
”Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”
The minutes from FOMC meeting in December showed that interest rates are not likely to rise at least before April.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.1394. In case EUR/USD manages to breach the first resistance level at 1.1468, it will probably continue up to test 1.1524. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1598.
If EUR/USD manages to breach the first key support at 1.1338, it will probably continue to slide and test 1.1264. With this second key support broken, the movement to the downside will probably continue to 1.1208.
The mid-Pivot levels for today are as follows: M1 – 1.1236, M2 – 1.1301, M3 – 1.1366, M4 – 1.1431, M5 – 1.1496, M6 – 1.1561.
In weekly terms, the central pivot point is at 1.1366. The three key resistance levels are as follows: R1 – 1.1462, R2 – 1.1540, R3 – 1.1636. The three key support levels are: S1 – 1.1288, S2 – 1.1192, S3 – 1.1114.
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