Forex Market: EUR/USD daily trading outlook

Yesterday’s trade saw EUR/USD within the range of 1.0833-1.0945. The pair closed at 1.0857, shedding 0.18% on a daily basis. It has been the fourth drop in the past five trading days. The daily high has been the highest level since January 11th, when a high of 1.0969 was registered.

At 7:11 GMT today EUR/USD was gaining 0.18% for the day to trade at 1.0884. The pair touched a daily high at 1.0890 at 7:01 GMT, overshooting the range resistance level (R3). Resistance may be encountered at the psychological 1.0900 level and then – in the area around the high from January 14th (1.0945). Support may be received at the hourly 21-period EMA (1.0875), then – at the hourly 100-period EMA (1.0866) and finally – in the area around the low from January 14th (1.0833).

On Friday EUR/USD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

Euro area

Italy – final Consumer Price Index

Italys final annualized consumer inflation probably matched the preliminary inflation estimate of 0.1% in December, which was reported on January 5th. If so, it would match the final inflation estimate reported in November. According to provisional data, in December upward pressure came from categories such as recreational, cultural and personal care (up 0.9% year-on-year and after a 0.6% gain in November) and unprocessed food (up 2.2% year-on-year and following a 3.2% growth in November). On the other hand, downward pressure on the general CPI came from categories such as non-regulated energy goods (down 8.8% year-on-year and following an 11.2% decline in November) and services related to transport (down 1.7% year-on-year, after a 0.6% gain in the preceding month).

The nations final annualized CPI, evaluated in accordance with the harmonized methodology, probably increased 0.1% in December, according to market expectations. If so, this would match the preliminary HICP estimate, reported on January 5th, and would also be the lowest annual HICP gain since April 2015. In November the final annualized HICP rose at a pace of 0.2%, up from a provisional estimate pointing to a 0.1% gain. The National Institute of Statistics (Istat) is to release the official CPI report at 9:00 GMT.

EZ – Balance of Trade s.a.

The surplus on the Euro zones seasonally adjusted balance of trade probably expanded to EUR 21.1 billion in November, according to the median forecast by experts, from a surplus of EUR 19.9 billion in October. If so, this would be the largest trade surplus since July 2015, when a figure of EUR 22.4 was reported.

The regions trade surplus, without a seasonal adjustment, was reported to have expanded to EUR 24.1 billion in October, or the largest figure since the record high of July 2015, from EUR 20.5 billion in September.

Total exports from the Euro area were up 1% to EUR 181.1 billion in October compared to October 2014, while total imports were almost unchanged at EUR 157.0 billion in October compared to the same month a year earlier. During the period January to October 2015, exports of goods from the Euro area expanded 5% compared to the same period a year ago to reach EUR 1 699.7 billion. At the same time, imports of goods went up 2% during the same period to reach EUR 1 499.9 billion.

Euro zones balance of trade produces regular surpluses mainly due to the high export of manufactured goods, such as machinery and vehicles. At the same time, the region is a net importer of energy and raw materials. Member states such as Germany, Italy, France and the Netherlands play a key role in total trade.

In case the seasonally adjusted trade surplus expanded more than expected in November, this would have a moderate bullish effect on the single currency, because of the positive implications regarding the regions economic growth. Eurostat is to release the official trade data at 10:00 GMT.

United States

Retail sales

Retail sales in the United States probably remained unchanged in December on a monthly basis, according to the median forecast by experts. In November sales were up 0.2%, after a 0.1% increases in the previous two months.

Among the 13 major categories, 8 registered growth, 4 showed declines and 1 showed no change. In November, the largest increases in sales were reported for clothing stores (+0.8%), sporting goods, hobby, book & music stores (+0.8%), food and beverages stores (+0.7%), general merchandise stores (+0.7%), miscellaneous store retailers (+0.7%), food and services drinking places (+0.7%), electronic appliance stores (+0.6%) and nonstore retailers (+0.6%).

On the other hand, in November, retail sales dropped at furniture stores (-0.3%), building material and garden equipment and supplies dealers (-0.3%), motor vehicle & parts dealers (-0.4%), and gasoline stations (-0.8%).

Sales at health and personal care stores remained unchanged during the same month, according to the report by the US Census Bureau.

Annualized retail sales surged 1.4% in November, following a 1.7% climb in October. Novembers rate of increase has been the slowest one since April 2015, when retail sales rose 1.3% year-on-year.

US core retail sales, or retail sales ex autos, probably went up 0.2% in December compared to a month ago, following a 0.4% climb in November. The latter has been the sharpest monthly rate of increase since July 2015, when core sales surged 0.4% as well. This indicator removes large ticket prices and historical seasonality of automobile sales.

In case the general index of sales showed a better-than-projected performance in December, this would have a strong bullish effect on the US dollar. The official report is due out at 13:30 GMT.

Producer Price Index

Annual producer prices in the United States probably fell for an 11th month in a row in December, by 1.0%, according to the median estimate by experts. If so, this would be the smallest annual drop since August 2015, when prices fell 0.8%. In November the annualized Producer Price Index (PPI) dropped 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. 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 lesser rate than anticipated, this would have a moderate bullish 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 0.3% in December from 0.5% in the prior month. The latter has been the fastest annual surge in the core PPI since September 2015. The Bureau of Labor Statistics is expected to report on the official PPI performance at 13:30 GMT.

Industrial Production Index

Industrial output in the United States probably shrank for a fifth straight month in December, going down at a monthly rate of 0.2%, according to market expectations. In November industrial production contracted 0.6% from a month ago, or at the steepest monthly rate since March 2015.

In November activity in the US mining sector shrank 1.1% compared to a month ago, with a greater part of this decline being attributable to considerable decreases for coal mining and for oil and gas well drilling and servicing. The gauge for utilities registered a 4.3% monthly drop in November, as unusually warm weather conditions weighed on demand for heating.

Manufacturing production, which accounts for almost three quarters of total industrial production, remained flat in November. Production of non-durable goods expanded 0.5%, while production of durable goods shrank 0.2% during the month. At the same time, the gauge for other manufacturing industries (publishing and logging) declined 1.7%.

A larger-than-projected monthly decline in the index would usually have a moderate bearish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the production data at 14:15 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 fourth successive month in January. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably rose to 93.0 during the current month from a final reading of 92.6 in December. The latter came above the preliminary reading of 91.8, which was reported on December 11th. If expectations were met, Januarys reading would be the highest since July 2015, when a level of 93.1 was reported.

The sub-index of current economic conditions advanced to a final reading of 108.1 from a preliminary 107.0 in December, after a month ago it stood at 104.3.

The sub-index of consumer expectations came in at a reading of 82.7, up from a preliminary value of 82.0 in December, but lower compared to a final reading of 82.9, registered in November.

Participants in the December survey expected that the rate of inflation will be at 2.6% during the next year, or unchanged compared to the preliminary release, but down from a rate of 2.7% as expected in November.

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

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.374% on January 14th, after which it closed at -0.381% to lose 0.002 percentage point in comparison with January 13th. It has been the 14th drop in the past 22 trading days and also a second consecutive one.

The yield on US 2-year government bonds climbed as high as 0.931% on January 14th, after which it closed at 0.903% to lose 1.2 basis points (0.012 percentage point) compared to January 13th. It has been the 14th drop in the past 22 trading days and also a third 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 1.284% on January 14th from 1.294% on January 13th. The January 14th 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 0.519% on January 14th, after which it slid to 0.516% at the close to add 0.007 percentage point compared to January 13th. It has been the 11th gain in the past 22 trading days.

The yield on US 10-year government bonds climbed as high as 2.122% on January 14th, after which it slipped to 2.100% at the close to add 0.009 percentage point compared to January 13th. It has been the 8th gain in the past 22 trading days.

The spread between 10-year US and 10-year German bond yields expanded to 1.584% on January 14th from 1.582% on January 13th. The January 14th yield difference has been the largest one since January 11th, when the spread was 1.632%.