Forex Market: EUR/USD daily trading outlook

Yesterday’s trade saw EUR/USD within the range of 1.0556-1.0596. The pair closed at 1.0570, shedding 0.12% on a daily basis, while marking its fourth consecutive trading day of losses. The daily low has been the lowest level since April 14th, when a low of 1.0529 was registered. In weekly terms, EUR/USD lost 0.50% of its value last week, while extending the loss, recorded in the week ended on November 22nd. The pair plummeted 3.95% in November, which has been the sharpest monthly decline since March 2015, when it depreciated 4.15%.

At 7:38 GMT today EUR/USD was gaining 0.25% for the day to trade at 1.0593. The pair touched a daily high at 1.0597 at 2:20 GMT, overshooting the upper range breakout level (R4).

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

Fundamentals

Euro area

Manufacturing PMI data by Markit

Activity in Italys sector of manufacturing probably was little changed in November, with the corresponding Purchasing Managers Index (PMI) ticking up to a reading of 54.2, as expected by experts, from 54.1 in October. If so, it would be the highest index value since May 2015, when a level of 54.8 was reported. Markit Economics is expected to release the official data at 8:45 GMT.

Frances final manufacturing PMI probably stood in the zone of expansion for a third consecutive month in November, while confirming the preliminary PMI reading of 50.8, which was reported on November 23rd. If expectations were met, this would be the highest activity in the sector since April 2014, when the index stood at a final 51.2. In October the final PMI was reported at 50.6. The official PMI is due out at 8:50 GMT.

The final reading of the German manufacturing PMI probably confirmed the preliminary value for November, with the index coming in at 52.6. If so, it would be the 12th consecutive month of expansion in activity. Novembers reading would also be the highest since August 2015. In October the final PMI stood at 52.1, improving from a preliminary value of 51.6. Markit will release the official reading at 8:55 GMT.

The final manufacturing PMI in the Euro zone probably also confirmed the preliminary value in November, with the index remaining at 52.8. If so, it would be the 29th consecutive month, during which the PMI inhabited the area above 50.0. In addition, it would be the highest index reading since April 2014, when a level of 53.4 was registered. The PMI reflects the performance of the manufacturing sector in the Euro area and is based on a survey of 3 000 manufacturing companies. National data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These member states together account for almost 90% of Euro zones manufacturing activity. The Manufacturing Purchasing Managers Index is comprised by five individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%), as the Delivery Times index is inverted, so that it moves in a comparable direction.

In case the final PMI readings exceeded expectations, this would have a strong bullish effect on the common currency. The official manufacturing PMI for the Euro region as a whole is scheduled to be released at 9:00 GMT.

Germany – change in unemployment

The number of the unemployed people in Germany probably dropped by 5 000 in November, according to the median forecast by experts, following another drop by 5 000, reported in October. A decrease implies that consumer spending may be more active, while the latter is tightly related to economic growth. A surge in the number of the unemployed suggests the opposite scenario.

At the same time, the seasonally adjusted rate of unemployment in the country probably remained steady at 6.4% for the ninth straight month in November, according to market expectations. This has been the lowest rate on record.

The seasonally adjusted harmonized jobless rate remained at 4.5% in September, stable compared to August, which followed six consecutive months, when a rate of 4.7% was reported. It has been the lowest rate since mid-1981. The number of unemployed persons dropped 1.1% to 1.87 million in September compared to August, while employment was up 0.1% to 40.05 million persons during the same period.

The unemployment rate for people aged between 15 and 24 decreased to 7.0% in September from 7.1% in August, while falling from 7.5%, recorded in September 2014.

In case the number of people unemployed decreased more than projected and the unemployment rate met expectations or dropped further, this would strongly support demand for the euro. The Federal Statistics Office will release the official numbers at 8:55 GMT.

Italy – rate of unemployment

The rate of unemployment in Italy probably fell to 11.7% in October, according to the median forecast by experts, from 11.8% in September. If so, this would be the lowest rate since January 2013, when unemployment was reported at 11.7% as well. The number of unemployed people decreased by 35 000 to reach 3.016 million in September, while the number of people in employment went down by 36 000 to reach 22.545 million. Unemployment among people aged between 15 and 24 dropped to 40.5% in September from 40.7% in the prior month, according to the National Institute of Statistics.

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

Italy – Gross Domestic Product (final estimate)

The final estimate of Italys annual Gross Domestic Product probably pointed to a 0.9% expansion in the third quarter of 2015, according to the median forecast by experts, while confirming the preliminary estimate, released on November 13th. If so, this would be a third straight quarter of positive growth and also the fastest annual rate of increase since Q1 2011, when Italian economy expanded at a final 1.0%. The GDP rose 0.7% during the second quarter of 2015, according to final data, while the provisional estimate pointed to a 0.5% growth.

On a quarterly basis, Italian economy probably expanded 0.2% in Q3, confirming the preliminary estimate. According to provisional data, in Q3 growth was supported by a further increase in domestic demand, while net exports continued to be a negative contributor to growth. On the production side, agriculture, industry and services sectors registered expansion.

In Q2 the nations GDP grew at a final rate of 0.3%, which exceeded the preliminary estimate and matched the rate of growth in Q1.

The National Institute of Statistics revised up its full-year growth projections to 0.9% for the current year and to 1.4% in 2016 and 2017 on November 5th, citing domestic demand as the major growth booster.

In case a higher-than-projected rate of growth was reported, this would have a limited-to-moderate positive effect on the euro. The National Institute of Statistics (Istat) will release the final GDP data at 10:00 GMT.

Euro area – rate of unemployment

The rate of unemployment in the Euro zone probably remained at 10.8% for a second straight month in October, according to expectations. This has been the lowest rate since January 2012, when the regions unemployment was at 10.7%.

In September the lowest rates of unemployment were registered in Germany (4.5%), the Czech Republic (4.8%) and Malta (5.1%), while the highest rates were in Greece (25%) and Spain (21.6%).

The EU 28 unemployment rate was reported at 9.3% in September, down from 9.4% in August and from 10.1% in September a year earlier. It has been the lowest rate since September 2009.

According to data by Eurostat, 22.631 million people in the EU28, of whom 17.323 million were in the Euro area, were unemployed in September. Compared with August the number of people unemployed decreased by 147 000 in the European Union and by 131 000 in the Euro zone. Compared with September 2014 unemployment was lower in the EU28 (a decrease by 1.832 million), while unemployed people in the Euro area were 1.194 million fewer.

Unemployed are considered to be all persons aged between 15 and 74, who have not been hired during the survey period, have been actively seeking employment during the past four weeks and are able to accept any job proposition right away or in two weeks time. A drop in unemployment in the region would have a strong bullish effect on the single currency. The official report by Eurostat is due out at 10:00 GMT.

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers Index for November probably confirmed the flash estimate of 52.6, which was reported on November 23rd. If expectations were met, this would be the lowest PMI reading since October 2013, when the final gauge was reported at 51.8. In October the final seasonally adjusted PMI stood at 54.1, inching up from a preliminary value of 54.0.

According to preliminary data by Markit, ”…manufacturing production growth moderated since the previous month and was slightly weaker than its average for 2015 so far. At the same time, latest data highlighted the softest expansion of incoming new work for just over two years. Reports from survey respondents generally cited acyclical slowdown in demand patterns and ongoing weakness in export sales. Reflecting this, the index measuring new orders from abroad dipped back inside negative territory in November. Lower levels of new work from abroad were linked to a combination of the strong dollar and weaker global economic conditions.”

”Manufacturing payroll numbers were reported to have increased again in November, continuing the trend seen for much of the past six years. However, the latest expansion of employment levels was only modest and weaker than seen on average over the recovery period. Softer rates of job hiring reflected greater caution in terms of the business outlook and reduced pressure on operating capacity. This was highlighted by a drop in backlogs of work for the first time in 12 months”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for November confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.

Manufacturing PMI by the ISM

Activity in United States’ manufacturing sector probably improved in November, with the corresponding manufacturing PMI coming in at a reading of 50.3, according to expectations, up from 50.1 in October. The latter has been the lowest PMI reading since May 2013, when the gauge was reported in the area of contraction (49.0).

The New Orders Index came in at 52.9 in October from 50.1 in September. The sub-gauge of production was reported at 52.9, advancing from 51.8 in September. The index of employment slid to a value of 47.6 in October from 50.5 in the preceding month. The gauge of prices was at 39.0 in October, up from 38.0 in September, which suggested lower prices of raw materials for a 12th month in a row. In October, 7 manufacturing industries reported growth, 9 reported contraction and 2 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).

In case the Manufacturing PMI improved more than anticipated in November, this would have a moderate-to-strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official PMI reading at 15:00 GMT.

Correlation with other Majors

Taking into account the week ended on November 29th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

EUR/USD to GBP/USD (0.7025, or strong)
EUR/USD to AUD/USD (0.5014, or strong)
EUR/USD to NZD/USD (0.0370, or very weak)
EUR/USD to USD/CAD (-0.3349, or moderate)
EUR/USD to USD/JPY (-0.4041, or moderate)
EUR/USD to USD/CHF (-0.9834, or very strong)

1. During the examined period EUR/USD moved strongly in one and the same direction with GBP/USD and AUD/USD.

2. EUR/USD moved almost independently compared to NZD/USD during the past week.

3. EUR/USD moved almost equally in the opposite direction compared to USD/CHF during the period in question.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.404% on November 30th, after which it closed at -0.412% to add 0.002 percentage point in comparison with November 27th. It has been the fifth gain in the past eleven trading days and also a second consecutive one.

The yield on US 2-year government bonds climbed as high as 0.954% on November 30th, or the highest level since November 6th (0.958%), after which it closed at 0.938% to add 1.2 basis points (0.012 percentage point) compared to November 27th. It has been the tenth gain in the past eleven trading days.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, widened to 1.350% on November 30th from 1.340% on November 27th. The November 30th yield spread has been the largest one since November 26th, when the difference was 1.350%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.487% on November 30th, or the highest level since November 25th (0.525%), after which it slid to 0.482% at the close to add 2.7 basis points (0.027 percentage point) compared to November 27th. It has been the first gain in the past five trading days.

The yield on US 10-year government bonds climbed as high as 2.245% on November 30th, or the highest level since November 25th (2.248%), after which it slipped to 2.215% at the close to lose 0.007 percentage point compared to November 27th. It has been the sixth consecutive trading day of decrease.

The spread between 10-year US and 10-year German bond yields narrowed to 1.733% on November 30th from 1.767% on November 27th. The November 30th yield difference has been the lowest one since November 24th, when the spread was 1.726%.