Yesterday’s trade saw EUR/USD within the range of 1.0967-1.1083. The pair closed at 1.1006, up 0.21% on a daily basis, or the lowest daily gain since June 21st, when it ticked up 0.08%. The daily low has also been the lowest level since July 7th, when the cross registered a low of 1.0917.
At 6:47 GMT today EUR/USD was down 0.04% for the day to trade at 1.1005. The pair touched a daily low at 1.0987 at 5:25 GMT.
A number of macroeconomic reports are to be watched today, as follows:
Fundamentals
United States
Producer prices
United States’ annualized producer price inflation probably rose to a level of -0.9% in June, according to the median estimate by experts, from -1.1% in May. If so, this would be the fifth consecutive month of decline in the annual Producer Price Index. 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. In case, however, annual producer prices fell at a lesser rate, this would usually have a bullish effect on the greenback.
The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably advanced to 0.7% in June from 0.6% in the prior month. The latter has been the lowest annual rate of increase in the PPI in at least 8 years. 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 on the official PPI performance at 12:30 GMT.
Industrial output, Capacity Utilization
Industrial output in the United States probably expanded 0.2% in June compared to May, following three consecutive months of contraction. In May total output shrank 0.2% due to lower manufacturing and mining production. Manufacturing output fell at a monthly rate of 0.2% in May, the index for mining output tumbled 0.3%, while, at the same time, the output of utilities rose 0.2% during the month.
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 13:15 GMT.
In addition, Capacity Utilization rate in the country probably remained steady at 78.1% in June. It has been the lowest utilization rate since August 2013, when a rate of 77.9% 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.
The ”Beige Book” report
At 18:00 GMT the Federal Reserve is to release its ”Beige Book” report. It is published eight times during the year. Each of the banks in the 12 Federal Reserve Districts gathers data in regard to current economic situation in the country on the basis of interviews with key business contacts, economists, market experts, and other sources. In case the Beige Book presents an optimistic economic outlook, this will usually support the US dollar, while a pessimistic view will usually have a bearish effect on the currency.
Euro Area
Greek debt situation
According to a person with knowledge of the matter, Greek financial position appears to deteriorate with every meeting, while other countries are now unwilling to provide help even with short-term funds.
“The Greek government has not received a bridge-financing program yet because some try to block this,” Greek Prime Minister Alexis Tsipras said during an interview with ERT-TV prior the parliamentary vote on the deal scheduled for today, cited by Bloomberg. “My priority is to make sure that the choice I made the other day, with a knife at my neck, is finalized.”
According to Tsipras, the austerity package was inevitable, otherwise the country would need to part ways with the common currency union. The package of measures will not lead to reduction of wages or pensions, the PM said. Lifting the sales tax is “irrational”, but unavoidable in order to satisfy the countrys creditors, while the pension system reform was overdue, in his view.
There have been diverging opinions over how Greece is to be funded during the weeks to come. During the week ahead the country must pay EUR 3.5 billion (USD 3.9 billion) to the European Central Bank, while also needing to cover expenses on pensions and state salaries.
“We are looking at all the instruments and funds that we could use and all of them seem to have disadvantages or impossibilities or legal objections”, Dutch Minister of Finance, Jeroen Dijsselbloem, said in Brussels, cited by the same media.
Correlation with other Majors
Taking into account the week ended on July 12th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:
EUR/USD to NZD/USD (0.5348, or strong)
EUR/USD to GBP/USD (0.1374, or weak)
EUR/USD to USD/JPY (0.1180, or weak)
EUR/USD to AUD/USD (-0.3126, or moderate)
EUR/USD to USD/CAD (-0.5619, or strong)
EUR/USD to USD/CHF (-0.7669, or strong)
1. During the examined period EUR/USD moved strongly in one and the same direction with NZD/USD, while moving almost equally in the opposite direction compared to USD/CHF.
2. EUR/USD moved strongly in the opposite direction compared to USD/CAD during the past week.
3. The correlation between EUR/USD and GBP/USD, EUR/USD and USD/JPY was insignificant during the past week.
Bond Yield Spread
The yield on German 2-year government bonds went as high as -0.213% on July 14th, after which it slid to -0.231% at the close to lose 0.008 percentage point on a daily basis.
The yield on US 2-year government bonds climbed as high as 0.681% on July 14th, after which it fell to 0.637% at the close to lose 4 basis points (0.040 percentage point) for the day.
The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 0.868% on July 14th from 0.910% during the prior day. The July 14th spread has been the lowest one since July 10th, when the difference was 0.852%.
Meanwhile, the yield on German 10-year government bonds soared as high as 0.877% on July 14th, after which it slid to 0.840% at the close to lose 0.008 percentage point compared to July 13th, while marking a second straight day of decrease.
The yield on US 10-year government bonds climbed as high as 2.450% on July 14th, after which it slipped to 2.388% at the close to lose 5.8 basis points (0.058 percentage point) on a daily basis.
The spread between 10-year US and 10-year German bond yields narrowed to 1.548% on July 14th from 1.598% during the prior day. The July 14th yield difference has been the lowest one since July 10th, when the spread was 1.505%.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.1019. In case EUR/USD manages to breach the first resistance level at 1.1070, it will probably continue up to test 1.1135. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1186.
If EUR/USD manages to breach the first key support at 1.0954, it will probably continue to slide and test 1.0903. With this second key support broken, the movement to the downside will probably continue to 1.0838.
The mid-Pivot levels for today are as follows: M1 – 1.0871, M2 – 1.0929, M3 – 1.0987, M4 – 1.1045, M5 – 1.1103, M6 – 1.1161.
In weekly terms, the central pivot point is at 1.1096. The three key resistance levels are as follows: R1 – 1.1276, R2 – 1.1393, R3 – 1.1573. The three key support levels are: S1 – 1.0979, S2 – 1.0799, S3 – 1.0682.
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