Yesterday’s trade saw EUR/USD within the range of 1.0803-1.0889. The pair closed at 1.0885, going up 0.26% on a daily basis. It has been the first gain in the past four trading days. The daily low was a higher-low test of the low from January 8th.
At 7:18 GMT today EUR/USD was losing 0.12% for the day to trade at 1.0863. The pair touched a daily low at 1.0861 at 7:19 GMT, making an exact test of the range support level (S3). A break and close below S3 may send the pair down for a test of January 13th low (1.0803). Resistance may be encountered in the area around the current daily high (1.0897).
On Thursday EUR/USD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
Euro area
Italy – industrial output
Annualized industrial production in Italy probably expanded 2.5% in November, according to the median forecast by experts. If expectations were met, November would be the fifth consecutive month of expansion. In October industrial output grew 2.9%, or at the sharpest rate since May 2015, when it expanded 3.0%. At the same time, the seasonally adjusted index of industrial production probably rose 0.2% in November compared to October, following a 0.5% expansion in the preceding month. Octobers rate of increase has been the most considerable one since July 2015. The index reflects the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case annual output increased at a faster rate than anticipated, this would have a limited bullish effect on the common currency, as it would suggest a greater possibility of inflationary pressure build-up. The National Institute of Statistics (Istat) is to release the official industrial data at 9:00 GMT.
ECB Monetary Policy Accounts
At 12:30 GMT the European Central Bank is expected to release the accounts from its latest policy meeting, held on December 3rd. This document offers a fair and balanced reflection of policy deliberations, with its objective being to provide the rationale behind monetary policy decisions and let the public receive a better understanding of the ECB Governing Council’s assessment of macroeconomic conditions.
The key refinancing rate was left intact at the record low level of 0.05% in line with market expectations. The rate on the marginal lending facility was also kept unchanged at 0.30%, but the rate on the deposit facility was reduced by 10 basis points to -0.30%. Additionally, the central bank decided to extend its EUR 60-billion-per-month easing program until at least March 2017.
According to extracts from the Introductory Statement to the Press Conference, offered by ECB President Mario Draghi in December: ”The monthly purchases of €60 billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.”
”…we decided to include, in the public sector purchase programme, euro-denominated marketable debt instruments issued by regional and local governments located in the euro area in the list of assets that are eligible for regular purchases by the respective national central banks.”
”…we decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017.”
There have been indications that the set of monetary policy tools could be expanded at the Banks upcoming meetings. ”There is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would. There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate”, Mario Draghi said in a statement at the Economic Club of New York held on December 4th. ”I can say therefore with confidence – and without any complacency – that we will secure the return of inflation to 2% without undue delay, because we are currently deploying tools that we believe will achieve this, and because we can, in any case, deploy our tools further if that proves necessary”, he added.
In case the Monetary Policy Accounts were to present a hawkish economic outlook, the common currency would receive support, while a dovish outlook would usually lead to a sell-off.
United States
Import and Export prices
Prices of imported goods in the United States probably fell for a seventh consecutive month in December, going down at a monthly rate of 1.4%, according to market expectations. In November import prices were 0.4% lower from a month ago, driven by a 2.5% decline in fuel import prices and a 0.2% dip in non-fuel prices. In annual terms, prices were 9.4% lower in November, which has been the 16th consecutive month of decline. Generally, lower import prices of goods suggest lower rates of consumer inflation.
Prices of exported goods from the United States probably decreased for a seventh consecutive month in December, falling at a monthly rate of 0.5%. In November export prices were 0.6% lower from a month ago, as agricultural export prices fell 1.1%, while prices of non-agricultural goods dropped 0.3%. In annual terms, export prices slumped 6.3% in November, or for a 15th month in a row. Lower prices of exported goods generally bolster demand abroad, and as US trade accounts for 20% of international trade relations, this also tends to be dollar positive.
The Department of Labor is expected to release the official numbers at 13:30 GMT.
Initial, Continuing Jobless Claims
The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on January 8th, probably increased to 275 000, according to market expectations, from 277 000 reported in the preceding week. If expectations were met, this would be the lowest number of claims since the business week ended on December 18th, when a figure of 267 000 was reported.
The 4-week moving average, an indicator lacking seasonal effects, was 275 750, marking a decrease by 1 250 compared to the preceding weeks unrevised average.
The business week, which ended on January 1st has been the 43rd consecutive week, when jobless claims stood below the 300 000 threshold, which implied a healthy labor market.
Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or decreased further, this would have a moderate bullish effect on the US dollar.
The number of continuing jobless claims probably fell to the seasonally adjusted 2 215 000 during the business week ended on January 1st from 2 230 000 in the preceding week. The latter represented an increase by 25 000 compared to the revised up number of claims reported in the week ended on December 18th. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago.
The Department of Labor is to release the weekly report at 13:30 GMT.
Bond Yield Spread
The yield on German 2-year government bonds went as high as -0.370% on January 13th, after which it closed at -0.379% to lose 0.002 percentage point in comparison with January 12th. It has been the 13th drop in the past 21 trading days.
The yield on US 2-year government bonds climbed as high as 0.956% on January 13th, after which it closed at 0.903% to lose 2.5 basis points (0.025 percentage point) compared to January 12th. It has been the 13th drop in the past 21 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 1.282% on January 13th from 1.305% on January 12th. The January 13th yield spread has been the lowest one since December 11th, when the difference was 1.222%.
Meanwhile, the yield on German 10-year government bonds soared as high as 0.554% on January 13th, after which it slid to 0.497% at the close to lose 3.3 basis points (0.033 percentage point) compared to January 12th. It has been the 11th drop in the past 21 trading days and also a second consecutive one.
The yield on US 10-year government bonds climbed as high as 2.151% on January 13th, after which it slipped to 2.079% at the close to lose 2.6 basis points (0.026 percentage point) compared to January 12th. It has been the 14th drop in the past 21 trading days and also a second consecutive one.
The spread between 10-year US and 10-year German bond yields expanded to 1.582% on January 13th from 1.575% on January 12th. The January 13th yield difference has been the largest one since January 11th, when the spread was 1.632%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for EUR/USD are presented as follows:
R1 – 1.0893
R2 – 1.0901
R3 (range resistance) – 1.0909
R4 (range breakout) – 1.0932
S1 – 1.0877
S2 – 1.0869
S3 (range support) – 1.0861
S4 (range breakout) – 1.0838
By using the traditional method of calculation, the weekly pivot levels for EUR/USD are presented as follows:
Central Pivot Point – 1.0863
R1 – 1.1018
R2 – 1.1103
R3 – 1.1258
S1 – 1.0778
S2 – 1.0623
S3 – 1.0538
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