Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.0894-1.1096. The pair closed at 1.0920, plummeting 1.17% on a daily basis, or at the steepest rate since October 22nd, when it fell 2.05%. The daily low has been the lowest level since August 7th, when a low of 1.0854 was registered.

The dollar was largely supported on Wednesday, as the Federal Reserve kept borrowing costs on hold, but left the door open for a hike in December, citing sound gains in US household spending and investment. Policymakers dropped prior warnings in regard to the risks global financial and economic developments were posing to economic activity in the United States.

At 7:21 GMT today EUR/USD was gaining 0.17% for the day to trade at 1.0941. The pair touched a daily high at 1.0944 at 7:20 GMT.

Today EUR/USD trading may be influenced by a vast array of macroeconomic reports as listed below.

Fundamentals

Euro area

German unemployment change

The number of the unemployed people in Germany probably dropped by 5 000 in October, according to the median forecast by experts, following an increase by 2 000, reported in September. The latter has been the most modest increase since May 2012, when unemployed people were reported to have been 1 000 more. 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 eighth straight month in October, according to market expectations. This has been the lowest rate on record.

The seasonally adjusted harmonised jobless rate fell to 4.5% in August, following six consecutive months, when a rate of 4.7% was reported. It has been the lowest rate since mid-1981. The number of unemployed persons dropped 1.0% to 1.90 million in August compared to July, while employment was little changed at 39.93 million persons during the same period.

The unemployment rate for people aged between 15 and 24 was steady at 7.0% in August, while falling from 7.6% in August 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 8:55 GMT.

Economic Sentiment Indicator, Consumer Confidence Index

The final value of the consumer confidence index probably confirmed the preliminary reading in October at -7.7. It has been the lowest level since January 2015, when a final value of 8.5 was reported. The final index for September came in at -7.1, confirming the preliminary reading. The indicator measures consumer confidence on a scale of -100 to +100. A reading of -100 suggests a lack of confidence, zero means neutrality and a reading of +100 indicates extreme levels of confidence. The index reflects the level of optimism, which consumers have about economic development in the region. The Business and Consumer Survey is conducted by phone and includes 23 000 households in the Euro area. The questions asked stress on current economic and financial situation, savings intention and also on expected developments regarding consumer price indexes, general economic situation and major purchases of durable goods. This indicator is one of the five major components, that comprise the Economic Sentiment Indicator (ESI).

The ESI probably slowed down to 105.2 in October, according to expectations, from a reading of 105.6 in September. The latter has been the highest index level since April 2011, when a value of 106.1 was reported. The Economic Sentiment Indicator (ESI) is a composite indicator, consisting of five sectoral confidence indicators with different weights: Industrial confidence indicator, Services confidence indicator, Consumer confidence indicator, Construction confidence indicator and Retail trade confidence indicator. The ESI is calculated as an index with a mean value of 100.0 and standard deviation of 10 over a fixed standardized sample period.

Lower confidence usually implies lesser willingness to spend, including large-ticket purchases, while consumer spending is a key factor behind economic growth. Therefore, in case either the ESI, or the consumer confidence indicator dropped more than anticipated, this would cause a moderate bearish impact on the euro. The European Commission is expected to release the official ESI reading at 10:00 GMT.

German consumer inflation – preliminary estimate

German preliminary annualized consumer inflation probably accelerated to 0.2% during October, according to the median forecast by analysts, from a final zero rate in September. The latter was influenced by a further decrease in energy prices, which neutralized an increase in prices of food and services.

Energy costs went down 9.3% year-on-year in September, as prices of heating oil plunged 27.9% and prices of motor fuels dropped 13.8%. Prices of other energy products were also down, namely charges for central and district heating (-7.4%) and gas (-1.8%). On the other hand, prices of food and non-alcoholic beverages rose 0.9% year-on-year in September, according to the report by Destatis. Last month prices of goods as a whole slumped 1.3%, after another 0.9% decline in August, while cost of services was up 1.1% in September, following a 1.2% increase in August.

The nations preliminary annualized Consumer Price Index, evaluated in accordance with the harmonized methodology, probably rose 0.1% in October, according to market expectations. In September annual harmonized consumer inflation entered into negative territory for the first time since February 2015, falling to -0.2%, which came in line with the preliminary inflation estimate reported on September 29th. The harmonized methodology is used for the sake of consumer inflation comparison in an international context (member states in the Euro area).

In case the annualized general CPI accelerated more than expected and came a step closer to the 2-percent inflation objective, set by the European Central Bank, this would have a moderate-to-strong bullish effect on the euro, as it would imply that ECBs accommodative monetary policy has begun to work in favor of economic activity. Destatis is scheduled to release the preliminary CPI report at 13:00 GMT.

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 October 23rd, probably increased to 262 000, according to market expectations, from 259 000 in the previous week.

The 4-week moving average, an indicator lacking seasonal effects, was 263 250, marking a decrease of 2 000 compared to the preceding weeks revised up average. It has been the lowest level for this average since December 15th 1973, when 256 750 claims were reported.

The business week, which ended on October 16th has been the 33rd 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 2 160 000 during the business week ended on October 16th, from 2 170 000 in the prior week. The latter represented an increase by 6 000 compared to the revised up number of claims reported in the week ended on October 2nd. 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.

Gross Domestic Product – preliminary estimate

The preliminary estimate of the US Gross Domestic Product probably pointed to an annualized rate of growth of 1.6% in the third quarter of the year, according to expectations. The final GDP estimate for Q2, reported on September 25th, pointed to an annual growth of 3.9%, a revision up compared to the preliminary and the second GDP estimates. It has also been the fastest annual rate of growth since Q3 2014, when US economy expanded at a final rate of 5.0%.

Consumer spending in the country rose 3.6% year-on-year in the second quarter of 2015, up from a 3.1% expansion in the second estimate, and following a 1.8% increase in the previous quarter.

Housing investment was up 9.3% year-on-year in Q2, up from a 7.8% increase in the second esimate, and following a 10.1% increase in the first quarter of the year.

Business investment expanded at an annualized rate of 4.1% in Q2, accelerating from a 3.2% increase in the second estimate, and following a 1.6% expansion in the first quarter.

Government purchases were up 2.6% year-on-year in Q2, or in line with the second estimate and rebounding from a 0.1% drop in the preceding quarter.

US exports rose at an annualized rate of 5.1% in Q2, slowing down from a 5.2% growth in the second estimate, while following a 6.0% slump in Q1. US imports climbed 3.0% year-on-year in the second quarter, also slowing down from a 2.8% increase in the second estimate and down from a 7.1% gain in the first quarter, according to data by the US Department of Commerce.

In case a slower-than-projected rate of growth is reported in Q3, this would have a substantial bearish effect on the US dollar. The preliminary GDP report is due out at 12:30 GMT.

Pending Home Sales

The index of pending home sales in the United States probably rose 1.0% in September compared to August, according to the median estimate by experts, following a 1.4% slump in the prior month. If so, this would be the sharpest monthly rate of increase since April 2015, when pending home sales went up 3.4%.

In annual terms, the index of pending home sales rose 6.1% in August, or at the slowest pace since December 2014, when a climb rate of 6.1% was reported as well.

When a sales contract is accepted for a property, it is recorded as a pending home sale. As an indicator the index provides information on the number of future home sales, which are in the pipeline. It gathers data from real estate agents and brokers at the point of a sale and is currently the most accurate indicator regarding the US housing sector. It samples over 20% of the market. In addition, over 80% of pending house sales are converted to actual home sales within 2 or 3 months. Therefore, this index has a predictive value about actual home sales.

In case pending home sales increased more than anticipated, this would have a moderate bullish effect on the greenback. The National Association of Realtor’s (NAR) will release the official index value at 14:00 GMT.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.323% on October 28th, after which it slid to -0.345% at the close to lose 0.008 percentage point in comparison with October 27th, while marking a third consecutive trading day of decline.

The yield on US 2-year government bonds climbed as high as 0.723% on October 28th, or the highest level since September 25th (0.743%), after which it closed at 0.715% to add 9.4 basis points (0.094 percentage point) compared to October 27th. It has been the first gain in the past three trading days.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, expanded to 1.060% on October 28th from 0.958% on October 27th. The October 28th yield spread has been the largest one in more than four months.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.474% on October 28th, after which it slid to 0.444% at the close to lose 0.001 percentage point compared to October 27th, while marking a third consecutive trading day of decline.

The yield on US 10-year government bonds climbed as high as 2.108% on October 28th, or the highest level since October 9th (2.138%), after which it slipped to 2.092% at the close to add 5.5 basis points (0.055 percentage point) compared to October 27th. It has been the first gain in the past three trading days.

The spread between 10-year US and 10-year German bond yields expanded to 1.648% on October 28th from 1.592% on October 27th. The October 28th yield difference has been the largest one in more than four months.