Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.1103-1.1215. The pair closed at 1.1186, up 0.59% on a daily basis. It has been the first gain in the past four trading days. The daily low has been the lowest level since September 4th, when the cross registered a low of 1.1088.

At 6:21 GMT today EUR/USD was gaining 0.04% for the day to trade at 1.1190. The pair overshot the range resistance level (R3), as it touched a daily high at 1.1219 at 6:38 GMT.

Today the cross may be influenced by a number of macroeconomic reports and other events as listed below.

Fundamentals

Euro area

German IFO Business Climate

Business climate in Germany was probably little changed in September, with the respective gauge ticking down to a reading of 108.0, according to market expectations, from 108.3 in August. The latter has been the highest level since May 2015, when a value of 108.5 was reported.

The IFO Business Climate Index reflects entrepreneurs’ sentiment in regard to current business situation and their expectations for the next six months. The index is based on a survey, conducted by phone and encompasses 7 000 companies, which operate in sectors such as manufacturing, construction, wholesaling and retailing industry. The Business Climate Balance represents the difference between the percentage share of respondents that are optimistic and the share of respondents that are pessimistic. The balance can fluctuate between -100, which suggests all responding companies assess their situation as poor and expect business conditions to deteriorate, and +100, which suggests all responding companies assess their situation as good and expect an improvement in business conditions. In order to calculate the IFO Business Climate Index, the Balance is normalized to the average of a base year, which currently is 2005.

The IFO Business Climate Index is comprised by two equally-weighted sub-indexes – a gauge of expectations and a gauge of current assessment. The IFO expectations index probably slipped to 101.4 in September from 102.2 in August. If so, this would be the lowest gauge level since December 2014, when a value of 101.3 was reported. The IFO current assessment index was probably little changed in September, ticking down to 114.7 from 114.8 in the prior month. Augusts reading has been the highest since June 2014, when a value of 114.8 was reported.

In case the Business Climate Index registered a larger-than-projected decrease in September, this would have a moderate bearish effect on the single currency. The CESifo Group is expected to release the official numbers at 8:00 GMT.

Italian retail sales

At 8:00 GMT the National Institute of Statistics (Istat) is to report on retail sales regarding July. In June annualized retail sales surged 1.7%, or at the sharpest rate since April 2014, when sales rose 2.7%. In monthly terms, retail sales with a seasonal adjustment dropped for a second straight month in June, down 0.3%. The latter has been the sharpest monthly decrease since December 2013, when sales dropped 0.3%. This indicator reflects the change in the total value of inflation-adjusted sales by retailers in the country and provides key information regarding the consumer spending trend, while the latter is a key driving force behind economic growth. An increase in the monthly retail sales index usually has a limited bullish effect on the euro and vice versa.

United States

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 September 18th, probably increased to 271 000, according to market expectations, from 264 000 in the previous week. The latter has been the lowest number of claims since the business week ended on July 17th, when 255 000 claims were reported, or reaching a 40-year low.

The 4-week moving average, an indicator lacking seasonal effects, was 272 500, marking a decrease of 3 250 compared to the preceding weeks unrevised average.

The business week, which ended on September 11th has been the 28th consecutive week, when jobless claims stood below the 300 000 threshold.

Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or increased further, this would have a moderate bearish effect on the US dollar.

The number of continuing jobless claims probably decreased to the seasonally adjusted 2 235 000 during the business week ended on September 11th from 2 237 000 reported in the preceding week. The latter represented a drop by 26 000 compared to the revised up number of claims, reported in the business week ended on August 28th. 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 12:30 GMT.

Durable Goods Orders

Durable goods orders in the United States probably dropped 2.0% in August compared to a month ago, according to the median forecast by experts. If so, this would be the sharpest monthly decrease since December 2014, when orders were 3.7% lower. In July new orders for manufactured durable goods rose at a pace of 2.0%, a revision down from 2.2%, as reported previously.

In July, transportation equipment rose at a monthly rate of 4.7% to USD 83.2 billion, driven by a surge in aircraft orders.

Shipments of manufactured durable goods went up 1.0% to USD 243.2 billion in July. Unfilled orders for manufactured durable goods were up 0.2% to USD 1,197.5 billion, while inventories of manufactured durable goods were virtually unchanged at USD 402.1 billion. Non-defense new orders for capital goods rose 1.1% to USD 82.3 billion in July, according to data by the US Census Bureau.

Durable goods orders, as an indicator, gauge the strength of US manufacturing sector and represent a major portion of the nations factory orders. This is a closely watched report on manufacturing activity, because durable goods are the first type of goods to be affected by an economic downturn or upturn.

Durable goods orders, which exclude transportation, probably rose for a fifth consecutive month in August, up 0.1%, according to expectations. If so, it would be the slowest monthly rate of increase since February 2014, when this measure was up 0.1%. In July compared to June orders excluding transportation were up 0.4%, a revision down from a 0.6% surge as reported previously. Large ticket orders, such as automobiles for civil use or aircraft, are not present in the calculation, as their value may be in a wide range. This way the index provides a more reliable information in regard to orders for durable goods.

In case the general index decreased at a faster-than-projected pace, this would have a strong bearish effect on the US dollar. The US Census Bureau is scheduled to release the official data at 12:30 GMT.

New Home Sales

Sales of new single-family homes probably rose 1.6% to the seasonally adjusted annual rate of 515 000 in August, according to market expectations. If so, this would be the highest level of sales since May 2015, when a figure of 546 000 was reported. In July, the index of new home sales climbed 5.4% to the annual rate of 507 000 units. Sales in the Northeast rose for a third consecutive month in July and marked the largest increase (+23.1%), followed by sales in the West (+6.7%) and sales in the South (+5.8%). On the other hand, new home sales in the Midwest were down 6.9% in July.

The median sales price of new houses sold was USD 285 900 in July, while the average sales price was USD 361 600. The seasonally adjusted estimate of new houses for sale was 218 000 at the end of July, which represents a supply of 5.2 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 support demand for the greenback. The Census Bureau is to report the official figure at 14:00 GMT.

Yellen statement

At 21:00 GMT Federal Reserve Chair Janet Yellen is expected to take a statement. Moderate-to-high volatility is usually present during her speeches.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.239% on September 23rd, after which it slid to -0.252% at the close to add 0.004 percentage point on a daily basis. It has been the first gain in the past three trading days.

The yield on US 2-year government bonds climbed as high as 0.711% on September 23rd, after which it fell to 0.707% at the close to add 2.9 basis points (0.029 percentage point) for the day.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, widened to 0.959% on September 23rd from 0.934% during the prior day. The September 23rd yield spread has been the largest one since September 16th, when the difference was 1.018%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.624% on September 23rd, after which it slid to 0.601% at the close to add 0.001 percentage point compared to September 22nd.

The yield on US 10-year government bonds climbed as high as 2.173% on September 23rd, after which it slipped to 2.144% at the close to gain 1.2 basis points (0.012 percentage point) on a daily basis.

The spread between 10-year US and 10-year German bond yields expanded to 1.543% on September 23rd from 1.532% during the prior day. The September 23rd yield difference has been the largest one since September 15th, when the spread was 1.553%.