Yesterday’s trade saw EUR/USD within the range of 1.0817-1.0876. The pair closed at 1.0862, going up 0.12% on a daily basis. It has been the 7th gain in the past 17 trading days and also a second consecutive one. The daily high was a lower-high test of the high from January 22nd.
At 7:16 GMT today EUR/USD was inching up 0.03% for the day to trade at 1.0865. The pair touched a daily high at 1.0872 during the early hours of the Asian trading session, undershooting the daily R2 level, and a daily low at 1.0851 during mid-Asian trade.
On Wednesday EUR/USD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
Euro area
Italy – Consumer, Business confidence
Confidence among consumers in Italy probably was lower in January from a month ago, with the respective index coming in at a reading of 117.0, according to market expectations. In December confidence was again lower, as the gauge went down to as low as 117.6 from 118.4 in November. The latter has been the highest level of confidence since the new index was introduced in 1995, as respondents in the survey felt more optimistic about personal, current and future economic conditions.
The index of consumer confidence is based on a survey, conducted by phone and encompassing about 2 000 households in the country. Respondents give their opinion regarding past and future economic situation in Italy, past and future personal financial situation, unemployment, intention to make major purchases such as durable goods, and saving prospects. Readings of 100.0 indicate neutrality (no change in sentiment). Values above 100.0 signify improving confidence, while values below 100.0 are indicative of low expectations. Lower-than-expected index readings might have a moderate bearish impact on the common currency, due to negative implications in regard to consumer spending. The official reading is due out at 9:00 GMT.
Meanwhile, confidence among manufacturing companies in Italy probably lowered for a third consecutive month in January, with the corresponding index sliding to a level of 103.9. In December the gauge was reported at 104.1. If expectations were met, Januarys reading would be the lowest since August 2015, when a level of 102.5 was registered.
The Manufacturing Confidence Survey features 4 000 Italian companies. Respondents give their opinion regarding the current trend of order books, production and inventories, short-term forecasts on order books, production, prices and the general economic situation.
The index of business confidence is seasonally adjusted and has a base year of 2005. Readings of 100.0 signify neutrality in business sentiment. Values exceeding 100.0 imply improving confidence, while values below 100.0 are related with low expectations. In general, lower-than-anticipated index values may have a moderate bearish effect on the single currency and vice versa. The official reading by the Istat is due out at 9:00 GMT.
United States
New Home Sales
Sales of new single-family homes probably increased 2.0% to the seasonally adjusted annual rate of 500 000 in December, according to market expectations, from 490 000 reported in November. If expectations were met, this would be the highest level of sales since August 2015, when a figure of 552 000 was reported. Sales in the West went up 20.5% month-over-month in November, while those in the South rose 4.5%. At the same time, sales of new homes in the Northeast declined 28.6%, while those in the Midwest shrank 8.6%.
The median sales price of new houses sold went up as high as USD 305 000 in November, while the average sales price was USD 374 900. At the end of the month, the seasonally adjusted estimate of new houses for sale was 232 000, up from 227 000 at the end of October. It represents a supply of 5.7 months at the current sales rate, according to the report by the US Census Bureau.
In case the index of new home sales showed a better-than-anticipated performance, this would strongly support demand for the US dollar. The Census Bureau is to report the official figure at 15:00 GMT.
FOMC policy decision
The Federal Open Market Committee (FOMC) will probably keep the target for the federal funds rate at 0.500% at its two-day policy meeting, scheduled to be concluded today, according to the median forecast by experts.
In December the Committee raised borrowing costs by 25 basis points to the current 0.500% level for the first time in the past 55 policy meetings. Policy makers stressed on the significant improvement in US labor market conditions and also expressed a reasonable confidence that annual CPI inflation will accelerate to the 2% inflation objective over a medium term.
According to extracts from the FOMC Policy Statement released in December: ”Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.”
”In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
The Minutes from the FOMCs meeting on December 15th-16th, however, showed persisting concerns over low consumer inflation. ”Members observed that after this initial increase in the federal funds rate, the stance of monetary policy would remain accommodative. However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely”, the Minutes stated.
”Members stressed the potential need to accelerate or slow the pace of normalization as the economic outlook evolved. In the current situation, because of their significant concern about still-low readings on actual inflation and the uncertainty and risks present in the inflation outlook, they agreed to indicate that the Committee would carefully monitor actual and expected progress toward its inflation goal. In determining the size and timing of further adjustments to monetary policy, some members emphasized the importance of confirming that inflation would rise as projected and of maintaining the credibility of the Committees inflation objective.”
The FOMC will announce its official decision on policy at 19:00 GMT.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for EUR/USD are presented as follows:
R1 – 1.0867
R2 – 1.0873
R3 (range resistance) – 1.0878
R4 (range breakout) – 1.0894
S1 – 1.0857
S2 – 1.0851
S3 (range support) – 1.0846
S4 (range breakout) – 1.0830
By using the traditional method of calculation, the weekly pivot levels for EUR/USD are presented as follows:
Central Pivot Point – 1.0851
R1 – 1.0924
R2 – 1.1052
R3 – 1.1125
S1 – 1.0723
S2 – 1.0650
S3 – 1.0522
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