Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.1192-1.1285. The pair closed at 1.1249, ticking up 0.04% on a daily basis, while extending gains from Monday. The daily high has been the highest level since September 24th, when the cross registered a high of 1.1296.

At 6:17 GMT today EUR/USD was losing 0.17% for the day to trade at 1.1230. The pair tested the range support level (S3), as it touched a daily low at 1.1227 at 6:11 GMT.

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

Fundamentals

Euro area

German Unemployment rate

The number of the unemployed people in Germany probably dropped by 5 000 in September, according to the median forecast by experts, following a decrease by 7 000, reported in August. The latter has been the largest drop since April 2015, when unemployed people were reported to have been 8 000 fewer. 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.

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

The seasonally adjusted harmonized jobless rate stood at 4.7% for a sixth month in a row in July. It has been the lowest rate since 1981. The number of unemployed persons dropped 0.5% to 1.97 million in July compared to June, while employment was little changed at 39.87 million persons in July.

The unemployment rate for people aged between 15 and 24 dropped to 7.0% in July from 7.1% in June, while falling from 7.7% in July 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 7:55 GMT.

Italian Unemployment rate

The rate of unemployment in Italy probably lowered to 11.9% in August, according to the median forecast by experts, from 12.0% during the prior month. If so, it would be the lowest rate since March 2013, when unemployment was reported at 11.9% as well. The number of unemployed people decreased by 143 000 in July, or 4.4%, compared to a month ago. At the same time, employment in the country was 0.2% higher at 56.3% to reach 22.48 million persons in July. Youth unemployment rate fell to 40.5% in July from a revised down 43.1% in June, according to the National Institute of Statistics.

In case the rate of unemployment fell more than anticipated, this might provide a limited support to the single currency. Istat is to release the official report at 8:00 GMT.

Italian Consumer inflation – preliminary estimate

Italys preliminary annualized consumer inflation probably accelerated to 0.3% in September, according to expectations, from a final rate of 0.2% in August, as reported on September 14th. If so, it would be the highest annual inflation rate since June 2014, when a level of 0.3% was reported.

In August prices of food and soft drinks rose 0.9% year-on-year, following a 0.8% increase in July. In addition, prices at restaurants and hotels went up 1.6%, after a 1.4% surge in the prior month. Upward pressure also came from categories such as alcoholic beverages and tobacco (+2.9% year-on-year), education (+1.9%), recreation and culture (+0.9%), health (+0.6%), clothing and footwear (+0.5%). In August downward pressure came from categories such as transportation (-2.9% year-on-year, following a 1.8% slump in July), communication (-0.5%) and housing (-0.2%).

The nations preliminary annualized CPI, evaluated in accordance with the harmonized methodology, probably rose 0.3% in September, according to market expectations, slowing down from a final 0.4% gain in August. The latter has been the highest annual rate of harmonized inflation since May 2014.

An acceleration in the general CPI would have a limited bullish effect on the single currency. The National Institute of Statistics (Istat) is to release the official CPI report at 9:00 GMT.

Eurozone Consumer inflation – preliminary estimate

The preliminary annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably decelerated to a zero reading in September, according to the median estimate by experts, from a final rate of 0.1% in August. If so, this would be the lowest annual harmonized inflation since April 2015, when a zero rate was reported.

The largest upward pressures to impact the regions annual inflation in August were recorded for restaurants & cafés (+1.5% year-on-year), vegetables (+6.6%), tobacco (+3.5%).

At the same time, the largest downward pressure came from categories such as heating oil (-26.8% year-on-year), fuels for transport (-11%) and milk, cheese & eggs (-2.7%), according to the report by Eurostat.

The index shows the change in price levels of a basket of goods and services from consumer’s perspective and also reflects purchasing trends. The main components of the HICP are food, alcohol and tobacco (accounting for 19% of the total weight), energy (11%), non-energy industrial goods (29%) and services (41%).

The Harmonized Index of Consumer Prices (HICP) is used to evaluate and compare inflation rates between Member States, according to Art. 121 of the Amsterdam’s Agreement and directives by the European Central Bank (ECB), in order the latter to achieve price stability and the implementation of monetary policy.

In case the HICP performance met expectations or even went into negative territory, thus, further distancing from the 2% inflation objective set by the ECB, this would mount selling pressure on the euro, as this suggests the desired effect from monetary policy accommodation appears to be insufficient.

The preliminary annualized Core HICP probably increased at a rate of 0.9% in September, matching the final rate, reported in August. The latter came below the preliminary Core HICP estimate, pointing to an annual 1.0% increase. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the preliminary inflation data at 9:00 GMT.

Eurozone Unemployment rate

The rate of unemployment in the Eurozone probably remained steady at 10.9% for a second straight month in August. It has been the lowest rate since February 2012, when unemployment in the region was recorded at 10.8%.

In July the lowest unemployment rates were recorded in Germany (4.7%), the Czech Republic and Malta (both 5.1%), while the highest rates were in Greece (25.0%) and Spain (22.2%).

The EU 28 unemployment rate was reported at 9.5% in July, down 0.1% in comparison with June. It has been the lowest rate since June 2011.

According to data by Eurostat, 23.067 million people in the EU28, of whom 17.532 million were in the Euro area, were unemployed in July. Compared with June the number of people unemployed decreased by 232 000 in the European Union and by 213 000 in the Eurozone. Compared with July 2014 unemployment was lower in the EU28 (a decrease by 1.648 million), while unemployed people in the Euro area were 1.116 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 data by Eurostat is due out at 9:00 GMT.

United States

Change in Employment by ADP

Employers in the US non-farm private sector probably added 195 000 new jobs during September, according to the median estimate by experts, following 190 000 new positions added in August. If so, this would be the largest gain in jobs since June, when 237 000 positions were added. The employment report by Automated Data Processing Inc. (ADP) is based on data that encompasses 400 000 – 500 000 companies employing over 24 million people, working in the 19 major sectors of the economy. The ADP employment change indicator is calculated in accordance with the same methodology, which the Bureau of Labor Statistics (BLS) uses. Published two days ahead of the governments employment statistics, this report is used by traders as a reliable predictor of the official non-farm payrolls data. Creation of jobs has a direct link to consumer spending, while the latter is a major driving force behind economic growth. Therefore, in case new jobs growth came above expectations, this would have a moderate-to-strong bullish effect on the US dollar. The official figure is scheduled to be released at 12:15 GMT.

Fed Chair Yellens statement

At 19:00 GMT Federal Reserves Chair Janet Yellen is to take a statement. Moderate-to-high volatility of the dollar crosses is usually present during her speeches.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.243% on September 29th, after which it slid to -0.250% at the close to add 0.003 percentage point compared to September 28th.

The yield on US 2-year government bonds climbed as high as 0.684% on September 29th, after which it fell to 0.653% at the close to lose 1.9 basis points (0.019 percentage point) compared to September 28th, while marking a second consecutive trading day of decline.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 0.903% on September 29th from 0.925% on September 28th. The September 29th yield spread has been the lowest one since September 17th, when the difference was 0.883%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.615% on September 29th, after which it slid to 0.581% at the close to shed 1.8 basis points (0.018 percentage point) compared to September 28th. It has been a second consecutive daily drop.

The yield on US 10-year government bonds climbed as high as 2.120% on September 29th, after which it slipped to 2.061% at the close to lose 3.7 basis points (0.037 percentage point) compared to September 28th, while marking a second straight trading day of decrease.

The spread between 10-year US and 10-year German bond yields shrank to 1.480% on September 29th from 1.499% during the prior day. The September 29th yield difference has been the lowest one since September 18th, when the spread was 1.469%.