Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.0903-1.0984. The pair closed at 1.0977, up 0.52% on a daily basis, marking the first gain in the past three trading days and the most considerable one since October 14th, when it surged 0.83%.

At 7:20 GMT today EUR/USD was up 0.11% for the day to trade at 1.0989. The pair overshot the range resistance level (R3), as it touched a daily high at 1.1015 at 6:46 GMT.

Today EUR/USD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Euro area

Italian Unemployment rate

The rate of unemployment in Italy probably remained steady at 11.9% in September, according to the median forecast by experts. It has been the lowest rate since March 2013, when unemployment was reported at 11.9% as well. The number of unemployed people decreased by 11 000 to reach 3.061 million in August, while the number of people in employment went up by 69 000 to reach 22.566 million. Unemployment among people aged between 15 and 24 rose to 40.7% in August from 40.4% in the prior month, according to the National Institute of Statistics.

In case the rate of unemployment in the country fell further, this might provide a limited support to the single currency. Istat is to release the official report at 9:00 GMT.

Italian Consumer inflation – preliminary estimate

Italys preliminary annualized consumer inflation probably remained at 0.2% in October, according to expectations, matching the final rate in September, as reported on September 14th. If so, October would be the fifth straight month, when the annual inflation rate was 0.2%.

In September prices of food and non-alcoholic beverages climbed 1.5% year-on-year, following a 0.9% gain in August, supported by higher prices of unprocessed food (up 3.3%). Additional upward pressure came from categories such as restaurants and hotels (a 1.5% increase), miscellaneous goods and services (up 0.4% year-on-year), health (up 0.6%), furnishings and household equipment (up 0.3%) and clothing and footwear (up 0.5%).

On the other hand, cost of transport dropped further in September, at an annualized rate of 3.3%, following a 2.9% slump in the previous month, driven by lower prices of non-regulated energy (down 12.8%). Additional downward pressure came from cost of housing and utilities, down 0.2% in September.

The nations preliminary annualized CPI, evaluated in accordance with the harmonized methodology, probably rose 0.1% in October, according to market expectations, slowing down from a final 0.2% rate of increase in September. If so, Octobers rate would be the lowest one since April 2015, when annual inflation inhabited negative territory.

A deceleration in the general CPI would have a limited bearish effect on the single currency. The National Institute of Statistics (Istat) is to release the official CPI report at 9:00 GMT.

Euro area Unemployment rate

The rate of unemployment in the Eurozone probably remained steady at 11.0% for a second straight month in September, according to expectations. In July it slid to 10.9%, which has been the lowest rate since February 2012, when a level of 10.8% was reported.

In August the lowest rates of unemployment were registered in Germany (4.5%), the Czech Republic (5.0%) and Malta (5.1%), while the highest rates were in Greece (25.2%) and Spain (22.2%).

The EU 28 unemployment rate was reported at 9.5% in August, unchanged in comparison with July and down from 10.1% in August a year earlier. It has been the lowest rate since June 2011.

According to data by Eurostat, 23.022 million people in the EU28, of whom 17.603 million were in the Euro area, were unemployed in August. Compared with July the number of people unemployed decreased by 33 000 in the European Union and by 1 000 in the Eurozone. Compared with August 2014 unemployment was lower in the EU28 (a decrease by 1.490 million), while unemployed people in the Euro area were 892 000 fewer.

In case the rate of unemployment in the Euro region dropped further, this would have a strong bullish effect on the euro. The official numbers by Eurostat are due out at 10:00 GMT.

Euro area Consumer inflation – preliminary estimate

The preliminary annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably accelerated to a zero reading in October, according to the median estimate by experts, from a final rate of -0.1% in September. The latter has been the lowest annual inflation since March 2015, when a rate of -0.1% was reported.

The largest upward pressures to impact the regions annual inflation in September were recorded for restaurants & cafés (+0.12 percentage points), vegetables (+0.11 percentage points) and tobacco (+0.08 percentage points).

At the same time, the largest downward pressure came from categories such as fuels for transport (-0.71 percentage points), heating oil (-0.25 percentage points) and milk, cheese & eggs (-0.06 percentage points), according to the report by Eurostat.

The index shows the change in price levels of a basket of goods and services from consumer’s perspective and also reflects purchasing trends. The main components of the HICP are food, alcohol and tobacco (accounting for 19% of the total weight), energy (11%), non-energy industrial goods (29%) and services (41%).

In case the HICP performance met expectations or even climbed into positive territory, thus, approaching the 2% inflation objective set by the ECB, this would cause a strong bullish impact on the euro, as it suggests monetary policy accommodation has begun to work in favor of macroeconomic activity in the region.

The preliminary annualized Core HICP probably increased at a rate of 0.9% in October, matching the final rate, reported in September and August. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the preliminary inflation data at 10:00 GMT.

United States

Personal Income, Personal Spending, Employment Cost Index

Personal spending in the United States probably rose for a fifth straight month in September, up 0.2%, according to market expectations, while personal income was probably up for a sixth consecutive month in September, increasing at a monthly rate of 0.2%. Consumer spending, which accounts for over two thirds of the nations GDP, rose 0.4% in August.

At the same time, personal income increased 0.3% during the same month, while disposable personal income (DPI) rose USD 47.1 billion (or 0.4%). Private wages and salaries rose USD 31.5 billion in August, compared with an increase by USD 40.0 billion in the prior month. Government wages and salaries were USD 4.1 billion higher in August, compared with an increase by USD 3.8 billion in July.

Higher-than-expected rates of increase imply good employment conditions and, therefore, are dollar positive. The Bureau of Economic Analysis is to publish the official figures at 12:30 GMT.

Meanwhile, the Employment Cost Index (ECI) for the United States probably rose 0.6% during the third quarter of the year compared to Q2, following another 0.2% gain in Q2 compared to Q1. If so, this would be the 19th consecutive quarter of growth. This index measures the change in the price of labor, defined as compensation per employee hour worked. It shows changes in the cost of compensation not only for wages and salaries, but also for an extensive list of benefits. The ECI is considered as an indicator, reflecting cost pressures within companies that could trigger price inflation for finished goods and services. A larger than expected rate of increase would generally provide a certain support to the US dollar. The Bureau of Labour Statistics is to release the quarterly data at 12:30 GMT.

Chicago PMI

The Chicago Purchasing Managers Index (PMI) probably accelerated to a reading of 49.0 in October, according to expectations, from 48.7 during the prior month. The latter has been the lowest reading since May 2015, when the PMI came in at 46.2. The index reflects business conditions in the regions manufacturing sector and is interrelated with the Manufacturing Index, published by the Institute for Supply Management (ISM). A reading below the key level of 50.0 is indicative of pessimism (contraction in manufacturing activity). In case the PMI improved more than forecast, this would have a moderate bullish effect on the US dollar. The MNI Deutche Börse Group will release the official reading of the Chicago barometer at 13:45 GMT.

Reuters/Michigan Consumer Sentiment Index – final estimate

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved in October. The final reading of the corresponding index, which usually comes out two weeks after the preliminary data, probably came in at 92.5, up from a preliminary value of 92.1. If market expectations were met, this would be the highest level since July 2015, when the gauge of sentiment was reported at a final 93.1. In September the gauge of confidence came in at a final reading of 87.2, up from a preliminary value of 85.7. 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.

According to preliminary data, the sub-index of current economic conditions, which measures US consumers’ views of their personal finances, went up to a reading of 106.7 in October from a final 101.2 in September. The sub-index of consumer expectations improved to a flash reading of 82.7 in October from a final value of 78.2 in September.

Respondents in the survey expect that the 2016 rate of inflation will probably slow down to 2.7% from 2.8%, as expected in the September survey.

In case the gauge of consumer sentiment showed a larger increase than anticipated, this would have a moderate bullish effect on the dollar. The final reading is due out at 14:00 GMT.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.312% on October 29th, or the highest level since October 23rd (-0.301%), after which it slid to -0.319% at the close to add 2.6 basis points (0.026 percentage point) in comparison with October 28th. It has been the first increase in the past four trading days.

The yield on US 2-year government bonds climbed as high as 0.736% on October 29th, or the highest level since September 25th (0.743%), after which it closed at 0.724% to add 1.7 basis points (0.017 percentage point) compared to October 28th. It has been the second consecutive trading day of increase.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 1.043% on October 29th from 1.052% on October 28th. The October 29th yield spread has been the lowest one since October 27th, when the difference was 0.958%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.544% on October 29th, or the highest level since October 22nd (0.585%), after which it slid to 0.533% at the close to add 8.8 basis points (0.088 percentage point) compared to October 28th. It has been the first gain in the past four trading days.

The yield on US 10-year government bonds climbed as high as 2.180% on October 29th, or the highest level since September 25th (2.198%), after which it slipped to 2.164% at the close to add 6.3 basis points (0.063 percentage point) compared to October 28th, while marking the second consecutive trading day of increase.

The spread between 10-year US and 10-year German bond yields shrank to 1.631% on October 29th from 1.656% on October 28th. The October 29th yield difference has been the lowest one since October 27th, when the spread was 1.592%.