Yesterday’s trade saw EUR/USD within the range of 1.0675-1.0759. The pair closed at 1.0688, down 0.12% on a daily basis, while extending losses from Friday. The daily low has been the lowest level since November 10th, when the cross registered a low of 1.0673.
At 7:20 GMT today EUR/USD was losing 0.31% for the day to trade at 1.0654. The pair touched a daily low at 1.0650 at 7:14 GMT, undershooting the lower range breakout level (S4). It has been the lowest level since April 23rd, when a daily low of 1.0623 was registered. The pair has been trading below the weekly central pivot level for a second day in a row. A break and close below the round 1.0650 level may send EUR/USD down for a test of April 23rd low.
Today EUR/USD trading may be influenced by a number of macroeconomic reports as listed below.
Fundamentals
Euro area
ZEW Survey
The gauge of economic sentiment in Germany probably rebounded in November to reach 5.5, according to the median forecast by experts. In October the index fell to 1.9, or the lowest reading since October 2014, when it occupied negative territory.
The ZEW (Zentrum für Europäische Wirtschaftsforschung) economic expectations index is reported on a monthly basis. The study encompasses up to 350 financial and economic analysts. The indicator reflects the difference between the share of analysts, that are optimistic and those, that are pessimistic about the expected economic development in Germany over the next six months. A positive value indicates that the proportion of optimists is larger than that of pessimists. A ZEW reading of -100 suggests that all analysts are pessimistic about the current developments and expect economic conditions to deteriorate. A ZEW reading of 100 implies that all analysts are optimistic about the current situation and expect conditions to improve. A ZEW reading of 0 indicates neutrality.
The index of current assessment in Germany probably slipped to 55.0 in November, according to market expectations, from 55.2 in October. If so, Novembers reading would be the lowest one since February 2015, when the indicator was reported at 45.5.
The ZEW Economic Sentiment index for the whole Euro region probably rebounded in November to reach a value of 35.2, according to market expectations. In October the index of sentiment stood at 30.1, or the lowest value since November 2014, when a level of 11.0 was registered.
In case the German gauge of economic sentiment decreased at a sharper pace than expected, this would have a strong bearish effect on the common currency. The official numbers are scheduled to be released at 10:00 GMT.
United States
Consumer inflation
The annualized consumer inflation in the United States probably accelerated 0.1% in October, according to market expectations, after remaining flat in September. In monthly terms, the Consumer Price Index (CPI) probably rebounded in October, up 0.2%, following two months of decline in a row.
In September upward pressure came from cost of services less energy (up 2.7% year-on-year). Within the category, cost of shelter went up 3.2% year-on-year, cost of medical care rose 2.4% and cost of transportation services increased 2.2%. Additionally, consumers paid more for food in September (up at an annualized rate of 1.6%), according to the report by the Bureau of Labor Statistics. The largest downward pressure on the annual CPI came from prices of energy (down 18.4% in September from a year ago).
The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.
The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained steady at 1.9% in October, according to the median forecast by experts. It has been the highest annual core inflation since July 2014, when core consumer prices rose at an annual rate of 1.9%. This rate is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependence on the time of the year. The Core CPI is the gauge, which the Federal Reserve Bank takes into account in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile, while the central bank’s tools are slow-acting. In case, for example, prices of oil plunge considerably, this could result in a low rate of inflation, but the central bank will not take action until this decrease affects prices of other goods and services.
If the CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this will usually bolster the appeal of the US dollar.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
Industrial output, Capacity utilization
Industrial output in the United States probably expanded at a monthly rate of 0.1% in October, according to market expectations. If so, this would be the first increase in output in the past three months. In September industrial production contracted 0.2% from a month ago. Manufacturing production, which accounts for almost three quarters of total industrial production, shrank 0.1% in September, as the output of durable goods was 0.2% lower, while the production of non-durable goods remained steady. Mining sector output contracted 2% during the same period, because of considerable cuts in both the extraction of crude oil and the drilling of oil and gas wells. In addition, warmer-than-usual weather in September boosted the output of utilities by 1.3% month-on-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. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. Therefore, a larger-than-projected monthly increase in the index would usually have a moderate bullish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.
At the same time, capacity utilization rate in the country probably remained unchanged at 77.5% in October. It has been the lowest utilization rate since July 2011, when a level of 77.5% was reported. Lower rates of capacity utilization usually imply weaker inflationary pressure.
Bond Yield Spread
The yield on German 2-year government bonds went as high as -0.355% on November 16th, after which it closed at the exact same level to add 0.004 percentage point in comparison with November 13th. It has been the second gain in the past six trading days.
The yield on US 2-year government bonds climbed as high as 0.863% on November 16th, after which it closed at 0.855% to add 0.004 percentage point compared to November 13th. It has been the first gain in the past three trading days.
The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, remained steady at 1.210% on November 16th. This has been the lowest yield spread since November 9th, when the difference was 1.203%.
Meanwhile, the yield on German 10-year government bonds soared as high as 0.576% on November 16th, after which it slid to 0.538% at the close to lose 2.4 basis points (0.024 percentage point) compared to November 13th. It has been the sixth consecutive trading day of decline.
The yield on US 10-year government bonds climbed as high as 2.278% on November 16th, after which it slipped to 2.275% at the close to remain unchanged compared to November 13th. It has been the first increase in the past five trading days.
The spread between 10-year US and 10-year German bond yields widened to 1.737% on November 16th from 1.713% on November 13th. The November 16th yield difference has been the highest one in more than six months.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for EUR/USD are presented as follows:
R1 – 1.0696
R2 – 1.0703
R3 (range resistance) – 1.0711
R4 (range breakout) – 1.0734
S1 – 1.0680
S2 – 1.0673
S3 (range support) – 1.0665
S4 (range breakout) – 1.0642
By using the traditional method of calculation, the weekly pivot levels for EUR/USD are presented as follows:
Central Pivot Point – 1.0761
R1 – 1.0849
R2 – 1.0919
R3 – 1.1007
S1 – 1.0691
S2 – 1.0603
S3 – 1.0533
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