Forex Market: EUR/USD daily trading outlook

Yesterday’s trade saw EUR/USD within the range of 1.1332 – 1.1182 to close 0.60% lower at 1.1258.

At 07:10 GMT today EUR/USD was down 0.15% for the day to trade at 1.1242. The pair held in a daily range of 1.1216 – 1.1267 and is up 1.1% for the week so far, following another 1.1% jump the previous week.

Fundamentals

Eurozone

Spain’s final annualized consumer inflation in May confirmed a preliminary reading released on May 29th of 0.2% deflation, the National Statistics Institute (INE) reported at 07:00 GMT, which was the eleventh consecutive month during which annual consumer inflation remained in negative territory. In monthly terms, consumer prices registered a jump of 0.5%, confirming the preliminary estimate, following a 0.9% increase in April.

Key categories included in Span’s CPI are food and non-alcoholic beverages (accounting for 20% of the total weight) and transport (15%). Other categories are real estate (12%), hotels, coffee and restaurants (11.5%), clothing and footwear (9%) and entertainment and culture (7.5%). Health, communication, education and other goods and services comprise the remaining 25% of the index.

The CPI measures the change in price levels of the above mentioned basket of goods and services from consumer’s perspective and also provides clues over purchasing trends. In case the annual CPI accelerated more than projected, this would have a certain bullish effect on the euro.

Spanish final annualized CPI, evaluated in accordance with Eurostat’s harmonized methodology, also matched the May 29th preliminary estimate, which had shown a 0.3% drop. This marked the eleventh consecutive month, when harmonized inflation remained in negative territory. It stood at -0.7% in April. In monthly terms, the HICP came in at 0.4%, confirming the preliminary reading.

A separate report by Eurostat will likely show at 09:00 GMT that the euro areas seasonally-adjusted index of industrial production probably rose 0.3% in April from a month earlier, following a 0.3% contraction in March. Annualized output probably increased at a pace of 1.1%, following a 1.8% expansion in March.

The index, reflecting business cycle, measures the change in the overall inflation-adjusted value of output in the industrial sector which includes manufacturing, mining and utilities. In case industrial output expanded more than anticipated, this would support demand for the euro, as this implies a higher probability of inflationary pressure.

United States

United States’ producer price inflation probably contracted 1.1% in May from a year earlier, according to the median estimate by experts. This comes after a drop to -1.3% in April, which was the lowest reading in six years. Month-on-month, the PPI probably rose to 0.4%, which would reverse a -0.4% contraction the prior month.

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, will probably register at 0.7% in May, which would be a fifth straight month of deceleration from a peak of 2.1% in December. Month-on-month, core PPI is projected at 0.1% after a 0.2% contraction in April. This indicator is quite sensitive to changes in aggregate demand, thus, it can be used as a leading indicator for the 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 12:30 GMT.

Sentiment

A separate preliminary report by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved slightly in June compared to the previous month. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, is expected at 91.5 from Mays final reading of 90.7. The gauge was at 95.9 in April.

The survey encompasses about 500 respondents throughout the country. The index is comprised of 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 will likely register at 96.5 from 100.8 in May, while the sub-index of consumer expectations is projected at 85.0 compared to 84.2 last month.

In case the gauge of consumer sentiment came in above projections, this would boost demand for the greenback. The preliminary reading is due out at 14:00 GMT.

Pivot points

According to Binary Tribune’s daily analysis, the pair’s central pivot point stands at 1.1257. In case it penetrates the first resistance level at 1.1333, it will encounter next resistance at 1.1407. If breached, upside movement may attempt to advance to 1.1483.

If the cross drops below its S1 level at 1.1183, it will next see support at 1.1107. If the second key support zone is breached, downward movement may extend to 1.1033.

In weekly terms, the central pivot point is at 1.1127. The three key resistance levels are as follows: R1 – 1.1367, R2 – 1.1622, R3 – 1.1862. The three key support levels are: S1 – 1.0872, S2 – 1.0632, S3 – 1.0377.