Forex Market: EUR/USD daily trading forecast

Yesterday’s trade saw EUR/USD within the range of 1.0935-1.1032. The pair closed at 1.0967, falling 0.44% on a daily basis, while extending the loss from Monday. It has been the sharpest daily rate of decline since October 28th, when the pair fell 1.17%. The daily low has been the lowest level since October 29th, when the cross registered a low of 1.0903. In weekly terms, EUR/USD slid 0.12% last week, while marking its third consecutive week of decline.

At 7:26 GMT today EUR/USD was down 0.26% for the day to trade at 1.0935. The pair overcame the range support level (S3), as it touched a daily low at 1.0930 at 7:27 GMT.

Today EUR/USD trading may be influenced by a number of macroeconomic reports and other events as listed below.

Fundamentals

Euro area

Services PMIs

Activity in Italys sector of services probably expanded in October, with the corresponding PMI coming in at a reading of 53.7, as expected by experts, from 53.3 in the prior month. If expectations were met, October would be the tenth successive month, when the PMI inhabited the area above 50.0. Markit Economics is expected to release the official reading at 8:45 GMT.

Frances final services PMI probably confirmed the preliminary PMI reading of 52.3 in October, which was reported on October 23rd. If so, October would be the ninth consecutive month, when the PMI stood in the zone of expansion. In September the final services PMI was estimated at 51.9. The final reading for October is due out at 8:50 GMT.

The final reading of German services PMI probably confirmed the preliminary value for October, with the index coming in at 55.2, according to market expectations. If confirmed, October would be the 29th consecutive month, when the services PMI stood above the 50.0 level. It would also be the highest PMI level since March 2015, when a final value of 55.4 was registered. In September the final services PMI was reported at 54.1, down from a preliminary reading of 54.3. The index is based on data collected from a representative panel of more than 500 companies, operating in Germanys services sector, and gauges variables such as sales, employment, inventories and prices. Markit will release the final reading at 8:55 GMT.

The final services PMI in the Euro area probably also confirmed the preliminary value for October, with the index remaining at 54.2. If so, this would be the 27th straight month of activity expansion. In September the index came in at 53.7, according to final data, down from a preliminary reading of 54.0. The Purchasing Managers Index is based on a monthly survey, encompassing a sample of approximately 2 000 business entities, which represents private sector conditions in terms of new orders, output, employment, prices etc. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. Readings above the key level of 50.0 indicate optimism (increasing activity). Higher-than-expected values of any of the above mentioned PMIs would support demand for the common currency. The final reading for the Euro region is scheduled to be released at 9:00 GMT.

Producer prices

The annualized index of producer prices (PPI) probably fell 3.3% in September, according to market expectations, following a 2.6% decline in August. If so, this would be the 26th consecutive month, when annual producer prices slumped and also the steepest annual drop since November 2010, when the PPI fell 4.4%. The Producer Price Index measures changes in prices of goods and services either as they leave the production process, or as they enter it. Unlike the CPI, which measures price changes from the consumers perspective, the PPI basically gauges the prices received by domestic producers for their output, or the prices paid by domestic producers for their intermediate inputs. The PPI performance may be used as an early signal for inflationary pressure in economy. Generally speaking, a worse-than-expected PPI performance may have a limited bearish effect on the common currency, as it suggests stagnation in consumer prices, while a better-than-expected performance may have a bullish effect. Eurostat is to release the official report at 10:00 GMT.

United States

Change in employment by ADP

Employers in the US non-farm private sector probably added 181 000 new jobs during October, according to the median estimate by experts, following 200 000 new positions added in September. If so, this would be the lowest gain in jobs since April 2015, when 169 000 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 13:15 GMT.

Balance of trade

The deficit on US balance of trade probably narrowed to USD 43.20 billion in September, according to market expectations. In August the trade gap was reported at USD 48.33 billion, which has been the largest one since March 2015, when a deficit of USD 51.37 billion was registered.

Total exports shrank almost 2% to reach USD 185.09 billion in August due to unfavorable exchange rate of the US dollar and weak external demand. Exports of goods dropped 4.1 billion to reach USD 124.5 billion. Within the category, exports of industrial supplies and materials fell USD 2.2 billion, fuel oil exports shrank by USD 0.6 billion, plastic materials exports lowered by USD 0.2 billion and crude oil exports went down USD 0.2 billion during the month.

Total imports, at the same time, expanded 1.2% to USD 233.42 billion in August, driven by higher demand for consumer goods. Imports of goods rose by USD 2.5 billion to reach USD 192.4 billion in August. Within the category, consumer goods imports were up USD 4.0 billion, imports of cell phones and other household goods went up USD 2.1 billion, while those of toys, games and sporting goods increased by USD 0.3 billion during the period.

US exports to Mexico shrank by USD 1.5 billion, while shipments to the European Union declined by USD 0.5 billion. At the same time, purchases from China went up 3%.

In case the trade balance deficit contracted more than projected in September, this would have a strong bullish effect on the US dollar, because of the positive implications for the nations Gross Domestic Product. The official trade data by the Bureau of Economic Analysis is due out at 13:30 GMT.

ISM Non-manufacturing PMI

Activity in United States’ sector of services probably improved in October, with the corresponding non-manufacturing PMI coming in at a reading of 57.1, according to the median forecast by experts, up from 56.9 in September. The latter has been the lowest PMI reading since June, when a level of 56.0 was reported. If expectations were met, October would be the 70th consecutive month, when the gauge stood in the area above 50.0. The PMI is a compound index, based on the values of four equally-weighted components, which comprise it. These sub-indexes reflect seasonally adjusted new orders, seasonally adjusted employment, seasonally adjusted business activity and supplier deliveries.

The New Orders Index stood at 56.7 in September, down from a reading of 63.4 in the prior month. The Employment Index advanced to 58.3 in September from 56.0 in August, while marking growth for the 19th month in a row, according to data by the Institute for Supply Management (ISM). The Prices Index slid to 48.4 in September from 50.8 in August, which indicated prices declined in September for the first time since February 2015. The Non-Manufacturing Business Activity Index fell to 60.2 in September from 63.9 in August, indicating growth for a 74th straight month.

Among the 17 services industries, 13 reported growth in September.

In case the PMI showed a larger-than-anticipated improvement in October, this would have a moderate bullish effect on the US dollar. The ISM is to release the official numbers at 15:00 GMT.

Fed Chair Yellens statement

At 15:00 GMT Federal Reserve Chair Janet Yellen is to take a statement. Moderate-to-high volatility of the US dollar crosses is usually present during such events.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.299% on November 3rd, after which it slid to -0.306% at the close to lose 0.001 percentage point in comparison with November 2nd.

The yield on US 2-year government bonds climbed as high as 0.911% on November 3rd, or the highest level in at least ten months, after which it closed at 0.770% to add 1.3 basis points (0.013 percentage point) compared to November 2nd, while marking a second trading day of gains in a row.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, widened to 1.076% on November 3rd from 1.062% on November 2nd. The November 3rd yield spread has been the largest one in more than five months.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.583% on November 3rd, or the highest level since October 22nd (0.585%), after which it slid to 0.582% at the close to add 1.9 basis points (0.019 percentage point) compared to November 2nd, while marking a second straight trading day of increase.

The yield on US 10-year government bonds climbed as high as 2.225% on November 3rd, or the highest level since September 17th (2.298%), after which it slipped to 2.211% at the close to add 3.5 basis points (0.035 percentage point) compared to November 2nd, while marking a second consecutive trading day of gains.

The spread between 10-year US and 10-year German bond yields expanded to 1.629% on November 3rd from 1.613% on November 2nd. The November 3rd yield difference has been the largest one since October 29th, when the spread was 1.634%.