Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.0689-1.0829. The pair closed at 1.0817, rising 0.68% on a daily basis, or at the sharpest rate since October 14th, when it went up 0.83%. The daily high has been the highest level since November 6th, when a high of 1.0896 was registered.

At 7:20 GMT today EUR/USD was losing 0.33% for the day to trade at 1.0781. The pair touched a daily low at 1.0772 at 6:15 GMT, overshooting the range support level (S3).

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

Fundamentals

Euro area

Italian Gross Domestic Product – preliminary estimate

The preliminary estimate of Italys annual Gross Domestic Product probably pointed to a 1.0% expansion in the third quarter of the year, according to the median forecast by experts. If so, this would be the fastest annual rate of growth since Q1 2011, when Italian GDP rose 1.0%. In Q2 economy grew at an annualized pace of 0.7%, according to final data, released on September 1st.

On a quarterly basis, Italian economy probably expanded 0.3% in Q3, which would match the rate in the second three-month period of the year. In Q2 household consumption and a surge in inventories supported GDP expansion the most, while negative trade flows caused a negative impact on economy. Final consumption expenditure rose 0.2% in the second quarter, following a 0.1% drop in Q1, while final domestic demand was up 0.2%, after a 0.1% gain in Q1. Changes in inventories had a positive contribution to Italian growth, marking a 0.4% expansion in Q2, after another 0.5% surge in the first three months. On the other hand, net external demand continued to obstruct economic growth, marking a 0.2% contraction in Q2, after another 0.3% drop in the first quarter. Italian imports grew 2.2%, while total exports rose at a slower 1.2% during the period.

In case a faster-than-projected rate of growth is reported, this will have a moderate bullish effect on the single currency. The National Institute of Statistics (Istat) will release the preliminary GDP data at 9:00 GMT.

Euro area Gross Domestic Product – preliminary estimate

The seasonally adjusted preliminary Gross Domestic Product in the Euro zone probably expanded at an annualized rate of 1.7% during the third quarter of 2015, according to expectations, following another 1.5% increase of the GDP in the second quarter, according to final data. If so, this would be the fastest annual rate of growth since Q1 2011, when the regions economy expanded 2.5%.

The preliminary GDP during Q3 compared to the second quarter probably showed a 0.4% expansion, or the same rate of growth as in Q2 compared to Q1.

Household final consumption expenditure went up 0.4% in both the euro area and the EU28 in the second quarter, following a 0.5% and a 0.6% increases respectively in Q1. Gross fixed capital formation contracted 0.5% in the Eurozone and 0.1% in the EU28 in Q2, following a 1.4% increase in both regions. Total exports expanded 1.6% in both the euro area and the EU28, following a 1.0% growth in both regions, while total imports went up 1.0% in the euro area and 0.8% in the EU28 in Q2, following increases by 1.5% and 1.6% respectively in the prior quarter, according to the report by Eurostat.

In case economic growth in the single currency zone exceeded expectations, this would certainly boost the euro. Eurostat is expected to release the preliminary GDP report at 9:00 GMT.

United States

Retail sales

Retail sales in the United States probably rose 0.3% in October on a monthly basis, according to the median forecast by experts. In September sales were up another 0.1%, while the August performance was revised down to flat from a 0.2% gain previously.

Among the 13 major categories, 5 registered growth, 7 showed declines and 1 showed no change. In September, the largest increases were reported for motor vehicle and parts dealers (1.7%), clothing and accessories (0.9%), sporting goods, hobby, books and music stores (0.9%), food services and drinking places (0.7%) and furniture stores (0.6%). On the other hand, the largest decrease in sales was recorded at gasoline stations (-3.2%). Lower sales were reported also for miscellaneous store retailers (-1.3%), building material and garden equipment supplies dealers (-0.3%), food and beverage stores (-0.3%), non-store retailers (-0.2%), electronics and appliance stores (-0.2%) and general merchandise stores (-0.1%), according to the report by the US Census Bureau.

Annualized retail sales surged 2.4% in September, following a 2.0% climb in August.

US core retail sales, or retail sales ex autos, probably went up 0.4% in October compared to a month ago, following a 0.3% drop in September. If so, Octobers rate of increase would be the fastest one since July. This indicator removes large ticket prices and historical seasonality of automobile sales.

In case the general index showed a larger increase than projected, this would have a strong bullish effect on the US dollar. The official report by the US Census Bureau is due out at 13:30 GMT.

Producer prices

Annual producer prices in the United States probably fell for a ninth month in a row in October, by 1.2%, according to the median estimate by experts. If so, it would be the sharpest annual drop since April, when producer prices slumped 1.3%. In September the annualized Producer Price Index decreased 1.1%. It 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 larger rate than anticipated, this would have a moderate bearish 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 decelerated to 0.5% in October from 0.8% in the prior month. If so, this would be the lowest annual surge in the core PPI in more than eight years. The Bureau of Labor Statistics is expected to report on the official PPI performance at 13:30 GMT.

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 November. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably rose to 91.5 during the current month from a final reading of 90.0 in October. If so, November would mark the highest level of confidence since August, when the gauge was reported at a final 91.9. 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 102.3 from a preliminary 106.7 in October, after a month ago it stood at 101.2.

The sub-index of consumer expectations came in at a reading of 82.1, down from a preliminary value of 82.7 in October, but improving from a final reading of 78.2, registered in September.

Participants in the October survey expect that the rate of inflation will ease down to 2.7% during the next year from 2.8% in September, or unchanged compared to the preliminary data.

In case the gauge of consumer sentiment increased at a steeper pace than projected in November, this would have a moderate-to-strong bullish effect on the greenback. The preliminary reading is due out at 15:00 GMT.

ECB ready to employ additional measures to bolster consumer prices

The European Central Bank is ready to reassess its monetary policy measures and to introduce further instruments at the final meeting in December in order to boost consumer inflation in the Euro area, President Mario Draghi said yesterday in front of the European Parliament’s Economic and Monetary Affairs Committee in Brussels. Draghi also expressed concerns over downside risks posed by global growth and trade relations.

According to extracts from Mr. Draghis statement taken on November 12th: ”…inflation dynamics have somewhat weakened, mainly due to lower oil prices and the delayed effects of the stronger euro exchange rate seen earlier in the year.”

”From today’s perspective, this suggests that a sustained normalisation of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures.”

”We will closely monitor the risks to price stability and thoroughly assess the strength and persistence of the factors that are slowing the return of inflation to levels below, but close to, 2%. At our December monetary policy meeting, we will re-examine the degree of monetary policy accommodation.”

”If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained. Consistent with our forward guidance, the asset purchase programme is considered to be a particularly powerful and flexible instrument. In fact, we have always said that our purchases would run beyond end-September 2016 in case we do not see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.”

Following the statement, EUR/USD fell sharply below 1.0700, while EUR/GBP tested the area below 0.7050.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.343% on November 12th, after which it slid to -0.347% at the close to lose 0.008 percentage point in comparison with November 11th. It has been the first gain in the past four trading days.

The yield on US 2-year government bonds climbed as high as 0.887% on November 12th, or the highest level since November 10th (0.891%), after which it closed at 0.883% to add 0.005 percentage point compared to November 11th. It has been the eighth gain in the past nine trading days and also a second consecutive one.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, narrowed to 1.230% on November 12th from 1.233% on November 11th. The November 12th yield spread has been the lowest one since November 10th, when the difference was 1.217%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.625% on November 12th, after which it slid to 0.613% at the close to add 0.001 percentage point compared to November 11th. It has been the first gain in the past four trading days.

The yield on US 10-year government bonds climbed as high as 2.354% on November 12th, or the highest level since November 9th (2.377%), after which it slipped to 2.319% at the close to lose 1.2 basis points (0.012 percentage point) compared to November 11th. It has been the third consecutive trading day of decline.

The spread between 10-year US and 10-year German bond yields narrowed to 1.706% on November 12th from 1.719% on November 11th. The November 12th yield difference has been the lowest one since November 9th, when the spread was 1.679%.