Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.1362-1.1496. The pair closed at 1.1383, losing 0.79% on a daily basis. It has been the first drop in the past three trading days and also the most considerable one since September 21st, when the pair slid 1.03%. The daily high has been the highest level since August 26th, when the cross registered a high of 1.1562.

At 6:53 GMT today EUR/USD was up 0.02% for the day to trade at 1.1389. The pair touched a daily high at 1.1394 at 6:45 GMT.

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

Fundamentals

Euro area

Consumer inflation

The final annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably confirmed the preliminary rate at -0.1% in September, which was reported on September 30th. If so, this would be the first time since March, when annual consumer inflation inhabited negative territory. In August annual consumer prices rose at a final 0.1%, down from a preliminary 0.2%. According to the provisional data, in August the rate is expected to be influenced the most by cost of energy. The latter is expected to decrease 8.9% year-on-year in September, after another 7.2% fall in August. Prices of food, alcohol & tobacco are expected to surge the most in September, by 1.4% year-on-year, after a 1.3% increase in August. Cost of services is to go up 1.3% in September, after a 1.2% surge in the preceding month, while cost of non-energy industrial goods – by 0.3%, following a 0.4% gain in August.

In case the HICP fell more than anticipated, thus, further distancing from the 2% inflation objective set by the ECB, this would have a strong bearish impact on the euro, because it implies that monetary policy measures have not yet produced the desired effect, favoring economic activity.

The final annualized Core HICP for September probably matched the preliminary estimate of a 0.9% surge, which was reported on September 30th. In August the final Core HICP increased at an annual rate of 0.9%, down from a preliminary rate of 1.0%. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the final inflation data at 9:00 GMT.

United States

Industrial production, Capacity utilization

Industrial output in the United States probably shrank for a second straight month in September, down at a monthly rate of 0.2%, according to market expectations. In August industrial production contracted 0.4%, or at the sharpest monthly pace since March, when the index posted a 0.6% decline. Manufacturing production, which accounts for almost three quarters of total industrial production, shrank 0.5% in August, as production of durable goods fell 0.9%, while production of nondurable goods remained without change. The index for mining went down 0.6% in August, following a 1.8% surge in July. The index for utilities expanded 0.6% in August, following a 0.2% drop in the preceding 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. On the other hand, a larger-than-projected monthly decline in the index would usually have a moderate bearish effect on 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 decreased to 77.4% in September from 77.6% in August. If so, this would be the lowest utilization rate since June 2011, when a rate of 76.7% 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. Lower rates of capacity utilization usually imply weaker inflationary pressure.

Reuters/Michigan Consumer Sentiment Index – preliminary reading

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved for a second straight month in October. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably rose to 89.0 during the current month from a final reading of 87.2 in September. 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.

The sub-index of current economic conditions decreased to a final reading of 101.2 from a preliminary 100.3 in September, after a month ago it stood at 105.1.

The sub-index of consumer expectations came in at a reading of 78.2, up from a preliminary value of 76.4 in September, but down from a final reading of 83.4, registered in August.

Participants in the September survey expect that the rate of inflation will be 2.8% during the next year, or down from 2.9% in the preliminary data and unchanged compared to August.

In case the gauge of consumer sentiment increased at a steeper pace than projected in October, this would have a moderate-to-strong bullish effect on the greenback. The preliminary reading is due out at 14:00 GMT.