Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.1343-1.1413. The pair closed at 1.1379, up 0.20% on a daily basis. The daily high has been the highest level since September 18th, when the cross registered a high of 1.1460.

At 6:19 GMT today EUR/USD was gaining 0.18% for the day to trade at 1.1400. The pair tested the range resistance level (R3), as it touched a daily high at 1.1403 at 6:20 GMT.

Today the cross may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Euro area

Italian consumer inflation – final

Italys final annualized consumer inflation probably matched the preliminary inflation estimate of 0.3% in September, which was reported on September 30th. If so, this would be the highest annualized inflation since June 2014, when a final rate of 0.3% was reported. According to provisional data, in September upward pressure came from categories such as unprocessed food (up 3.4% year-on-year, following a 1.9% surge in August) and services related to transportation (up 0.8%, following a 0.1% slump in the preceding month). On the other hand, in September downward pressure to consumer prices came from categories such as non-regulated energy (down 12.8% year-on-year, following a 10.4% drop in August).

Key categories, included in Italys Consumer Price Index, are food and non-alcoholic beverages (accounting for 16% of total weight), transport (15%), restaurants and hotels (11%) and housing, water, electricity and other fuels (10%). Other categories are clothing and footwear (9%), furnishing and household equipment (8%), recreation and culture (8%) and health (also 8%). Communication, education, alcoholic beverages, tobacco and other goods and services comprise the remaining 15% of the index.

The nations final annualized CPI, evaluated in accordance with the harmonized methodology, probably increased 0.2% in September, according to market expectations. If so, this would match the preliminary HICP estimate, reported on September 30th, and would also be the lowest annual HICP gain since June, when the index climbed 0.2%. In August the final annualized HICP rose at a pace of 0.4%, down from a provisional estimate pointing to a 0.5% surge. The National Institute of Statistics (Istat) is to release the official CPI report at 8:00 GMT.

Industrial output

The seasonally adjusted index of industrial production in the Euro area probably dropped 0.5% in August compared to a month ago, according to market expectations. If so, it would be the sharpest monthly decline since March, when production shrank 0.5%. In July industrial output surged 0.6%, or the most since February.

Annualized output probably increased at a pace of 1.8% in August, according to the median forecast by experts. If so, this would be the ninth consecutive month, when annual output grew. In July industrial production expanded 1.9% year-on-year, or the most since November 2014, when an annual rate of 2.8% was reported. Julys performance was boosted by production of energy (up 5.1% year-on-year), durable consumer goods (up 2.6%), production of capital goods (up 2.2%), production of non-durable consumer goods (up 1.7%) and production of intermediate goods (up 0.5%).

In July, the highest annual increases in industrial output were reported for Ireland (17.9%), Slovakia (11.9%), Latvia (8.3%), Malta (7.7%) and the Czech Republic (7.2%), while the most considerable decreases were observed in Estonia (-5.9%), the Netherlands (-4.4%), Greece (-1.5%), France and Finland (both -1.4%).

The index, reflecting the business cycle, measures the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case annualized industrial output expanded at a lesser pace than anticipated, this would have a moderate bearish effect on the euro, as it implies a lower probability of inflationary pressure occurring. Eurostat is to publish the official data at 9:00 GMT.

United States

Producer prices

Annual producer prices in the United States probably fell for an eighth month in a row in September, by 0.7%, according to the median estimate by experts. If so, it would be the lowest annual drop since June. In August the annualized Producer Price Index decreased 0.8%. 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 logic behind this indicator is that in case 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 annual producer prices fell at a lesser rate than anticipated, this would usually have a moderate bullish effect on the US dollar.

The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably accelerated to 1.2% in September from 0.9% in the prior month. If so, this would be the most considerable annual surge in the core PPI since January 2015, when the index rose 1.6%. The Bureau of Labor Statistics is expected to report on the official PPI performance at 12:30 GMT.

Retail sales

Retail sales in the United States probably rose 0.2% in September on a monthly basis, according to the median forecast by experts. In August sales were up another 0.2%, while the July performance was revised up to a 0.7% increase from a 0.6% gain previously.

Among the 13 major categories, 10 registered growth, while 3 showed declines. In August, the largest increases were reported for miscellaneous store retailers (0.9%), health and personal care stores (0.8%), motor vehicle and parts dealers (0.7%), food and beverages stores (0.7%), food services and drinking places (0.7%), clothing and accessories stores (0.4%) and general merchandise stores (0.4%). On the other hand, the largest decline in sales during the same month was recorded for gasoline stations and building material and garden equipment and supplies dealers (-1.8% each), followed by sales at furniture stores (-0.9%), according to the report by the US Census Bureau.

Annualized retail sales surged 2.2% in August, following a 2.6% climb in July. The latter has been the fastest rate of increase since January 2015, when a 3.7% increase was reported.

US core retail sales, or retail sales ex autos, probably went down 0.1% in September compared to a month ago. If so, this would be the first monthly drop since June. In August core sales increased 0.1%. This indicator removes large ticket prices and historical seasonality of automobile sales.

The report on retail sales reflects the dollar value of merchandise sold within the retail trade by taking a sampling of companies, operating in the sector of selling physical end products to consumers. The retail sales report encompasses both fixed point-of-sale businesses and non-store retailers, such as mail catalogs and vending machines. The Census Bureau, which is a part of the Department of Commerce, surveys about 5 000 companies of all sizes, from huge retailers such as Wal-Mart to independent small family firms.

The retail sales index is considered as a coincident indicator, thus, it reflects the current state of the economy. It is also considered a pre-inflationary indicator, which investors can use in order to reassess the probability of an interest rate hike or cut by the Federal Reserve Bank. In addition, this indicator provides key information regarding consumer spending trends. Consumer expenditures, on the other hand, account for almost two-thirds of the US Gross Domestic Product. Therefore, a larger-than-expected rate of increase in sales would have a strong bullish effect on the US dollar. The official report is due out at 12:30 GMT.

Federal Reserves Beige Book

At 18:00 GMT the Federal Reserve Bank is to release its ”Beige Book” report, which 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 greenback, while a pessimistic view will have a bearish effect on the currency.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.241% on October 13th, after which it slid to -0.248% at the close to add 0.007 percentage point compared to October 12th. It has been the fifth gain in the past seven trading days.

The yield on US 2-year government bonds climbed as high as 0.637% on October 13th, after which it fell to 0.621% at the close to lose 1.6 basis points (0.016 percentage point) compared to October 12th. It has been a second consecutive trading day of decline.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 0.869% on October 13th from 0.892% on October 12th. The October 13th yield spread has been the lowest one since October 7th, when the difference was 0.869%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.604% on October 13th, after which it slid to 0.586% at the close to add 0.006 percentage point compared to October 12th. It has been the fourth gain in the past seven trading days.

The yield on US 10-year government bonds climbed as high as 2.078% on October 13th, after which it slipped to 2.046% at the close to lose 2.4 basis points (0.024 percentage point) compared to October 12th, while marking a third consecutive trading day of decline.

The spread between 10-year US and 10-year German bond yields expanded to 1.460% on October 13th from 1.490% on October 12th. The October 13th yield difference has been the lowest one since October 6th, when the spread was 1.434%.