Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7907-0.7972. The pair closed at 0.7952, gaining 0.31% on a daily basis.

At 7:19 GMT today EUR/GBP was up 0.04% for the day to trade at 0.7955. The pair touched a daily high at 0.7961.

Fundamentals

Euro zone

Preliminary Manufacturing and Services data

Frances manufacturing PMI probably remained in the zone of contraction for an eighth consecutive month in December, with the preliminary index estimate being at 48.8, according to the median forecast by experts. The final PMI stood at 48.4 in November, as reported on December 1st, up from a preliminary reading of 47.6. Values below the key level of 50.0 indicate that the majority of respondents in the survey expressed pessimism in regard to activity in the sector. Markit Economics is expected to release the official data at 8:00 GMT.

French preliminary services PMI probably slightly improved to 48.5 in December from a final reading of 47.9 in the prior month. If so, this would be the fourth consecutive month, during which the index inhabited the zone below 50.0. Markit will publish the preliminary data at 8:00 GMT.

German manufacturing Purchasing Managers Index probably emerged above the key level of 50.0 in December, with the preliminary index value improving to 50.5, from a final reading of 49.5 in November, as reported on December 1st. The latter has been the lowest PMI level since June 2013, when the final PMI estimate was recorded at 48.6. The preliminary value is due out at 8:30 GMT.

Activity in German services sector was probably little changed in December, with the preliminary PMI climbing to 52.5 from a final reading of 52.1 in November. If so, this would be the nineteenth consecutive month, when the PMI stood in the zone of expansion. The preliminary data is to be released at 8:30 GMT.

Manufacturing activity in the whole Euro region probably improved in December, with the preliminary Purchasing Managers Index rising to 50.5 from a final value of 50.1 during the preceding month. If so, this would be the highest reading since October, when the final index was reported at 50.6, and also an eighteenth consecutive month of expansion. The PMI reflects the performance of the manufacturing sector in the area and is based on a survey of 3 000 manufacturing companies. National data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These member states together account for almost 90% of Euro zones manufacturing activity. The Manufacturing Purchasing Managers Index is comprised by five individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%), as the Delivery Times index is inverted, so that it moves in a comparable direction. The preliminary data is expected at 9:00 GMT.

The preliminary services PMI in the Euro zone probably showed improvement in December, reaching a level of 51.5. In November the final reading of the index was reported to have been at 51.1. If market expectations were met, this would be a seventeenth consecutive month, during which the index stood above the key level of 50.0. The PMI is based on data collected from a representative panel of around 2 000 private service sector companies. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The survey represents private sector conditions in terms of new orders, output, employment, prices etc. Markit will release the preliminary data at 9:00 GMT.

A larger-than-expected improvement in any of the PMI readings would certainly provide support to the common currency.

Italian Balance of trade

The surplus on Italys trade balance probably expanded to EUR 3.7 billion in October, according to market expectations. The nations trade surplus was at the amount of EUR 2.014 billion in September, increasing from a figure of EUR 0.68 billion in September a year earlier, as exports marked the largest annual gain since January 2013. Total exports increased at an annualized rate of 7.4% to EUR 34.57 billion in September, within which shipments of capital goods recorded the largest increase (11.6% year-on-year), followed by consumption goods (8.4%). Total imports rose at a rate of 3.3% year-on-year to EUR 32.55 billion during the same month, supported by a 6.2% surge in purchases from the European Union.

The trade balance, as an indicator, measures the difference in value between a country’s exported and imported goods during the reported period. It reflects the net export of goods, or one of the components to form the Gross Domestic Product. Generally, exports reflect how strong economic growth is, while imports indicate the strength of domestic demand. In case Italian trade surplus expanded more than anticipated, this might have a certain bullish effect on the single currency. The National Institute of Statistics (Istat) is to release the official trade data at 9:00 GMT.

Euro zone Balance of trade

The surplus on Euro areas trade balance probably contracted to EUR 17.0 billion in October, according to the median forecast by experts, following a surplus figure of EUR 18.5 billion in September, a 71.3% increase compared to the same month a year earlier. Total exports rose at an annualized rate of 8.5% to EUR 171.9 billion, while imports were 4% higher from a year ago to reach EUR 153.4 billion.

The surplus on regions extra-EU28 trade balance amounted to EUR 2.6 billion in September this year compared to a surplus of EUR 0.7 billion in September 2013. The highest increases in EU28 exports were registered with China (a 10% gain within the period January-August compared to January-August 2013), South Korea (8%) and the United States (4%). As for EU28 imports, the highest increases were observed with South Korea (9%), Turkey (6%), China and Switzerland (both 5%).

Euro zones balance of trade produces regular surpluses mainly due to the high export of manufactured goods, such as machinery and vehicles. At the same time, the region is a net importer of energy and raw materials. Member states such as Germany, Italy, France and Netherlands play a key role in total trade.

In case the trade balance surplus contracted more than anticipated in October, this would certainly have a bearish impact on the euro. Eurostat is to publish the official trade data at 10:00 GMT.

German, Euro zone ZEW Economic Sentiment

The gauge of economic sentiment in Germany probably improved to 20.0 in December, according to the median forecast by experts, from 11.5 in November. In October the index entered into negative territory for the first time since November 2012, slipping to a reading of -3.6.

The ZEW (Zentrum für Europäische Wirtschaftsforschung) economic expectations index is published monthly. The study encompasses up to 350 financial and economic analysts. The indicator reflects the difference between the share of analysts, that are optimistic and those, that are pessimistic about the expected economic development in Germany over the next six months. A positive value indicates that the proportion of optimists is larger than that of pessimists. A ZEW reading of -100 suggests that all analysts are pessimistic about the current developments and expect economic conditions to deteriorate. A ZEW reading of 100 implies that all analysts are optimistic about the current situation and expect conditions to improve. A ZEW reading of 0 indicates neutrality.

The index of current assessment in Germany probably rose to a value of 5.0 in December from 3.3 in the prior month and 3.2 in October. The latter has been the lowest index value since June 2010, when the indicator was reported at -7.9.

The ZEW Economic Sentiment index in the Euro zone probably also gained ground in December, reaching 20.1. If so, this would be the highest level since August, when the indicator was reported at 23.7. In November the index came in at 11.0.

In case the gauge of economic sentiment exceeded expectations, this would certainly have a positive impact on the common currency. The official data is scheduled to be released at 10:00 GMT.

United Kingdom

Consumer inflation

The cost of living in the United Kingdom probably remained unchanged, with the annual rate of inflation being at 1.3% in November, according to the median estimate by experts. If so, this would be the eleventh consecutive month, when the annualized Consumer Price Index remained below the 2-percent inflation objective, set by the Bank of England. In October transport costs were up 0.5% year-on-year, following a 0.1% climb in September. Cost of recreation and culture rose 1%, up from a 0.7% gain in September, while prices of housing, water, electricity and gas soared 3.2% year-on-year. Prices of alcoholic beverages and tobacco increased at a faster 5.2% (4.9% in September) and the cost of restaurants and hotels went up slightly to 2.5% from 2.3% in the preceding month, according to the report by the Office for National Statistics. On the other hand, prices of food and beverages slipped at an annual rate of 1.4% in October, or the same rate as in September, while clothing and footwear costs were down 0.2%.

The CPI is the main measure of inflation in the UK for macroeconomic purposes and forms the basis of the inflation target set by the government. Every month about 120 000 samples are made, examining the change in prices of about 650 products. They represent the “market basket” of goods and services, on which the index is based.

Key categories in the consumer price index are Transport (accounting for 16.2% of the total weight) and Housing, Water, Electricity, Gas and Other fuels with a 14.4% share. Recreation and Culture accounts for 13.4%, Restaurants and Hotels – 11.4% and Food and Non-alcoholic Beverages – 11.2%. The CPI also encompasses Miscellaneous Goods and Services (9.6%), Clothing and Footwear (6.5%), Furniture, Household Equipment and Maintenance (6.1%). Alcoholic Beverages and Tobacco, Health, Communication and Education comprise the remaining 11.2% of the total weight.

The annualized core consumer price inflation probably remained steady at 1.5% in November. If so, this would be the third consecutive month, during which the rate remained at that level. It has also been the lowest core inflation since April 2009. The core CPI measures the change in prices of goods and services purchased by consumers, without taking into account volatile components such as food, energy products, alcohol and tobacco.

In case the annual CPI slowed down more than expected, thus, distancing from the inflation objective of 2.0%, this would certainly reduce the appeal of the sterling. The Office for National Statistics (ONS) will publish the official CPI report at 9:30 GMT.

Financial Stability Report

Released twice every year by the Bank of England and under the guidance of the interim Financial Policy Committee, the Financial Stability Report, reflects the Committees outlook assessment of the stability and resilience of the financial sector in the country at the time the report is prepared. This document also shows the policy actions that are to be taken in order to diminish risks to stability. A hawkish financial outlook by the Committee is usually pound positive, while a dovish view usually has a bearish effect on the national currency. The report is to be published at 10:30 GMT.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7944. In case EUR/GBP manages to breach the first resistance level at 0.7980, it will probably continue up to test 0.8009. In case the second key resistance is broken, the pair will probably attempt to advance to 0.8045.

If EUR/GBP manages to breach the first key support at 0.7915, it will probably continue to slide and test 0.7879. With this second key support broken, the movement to the downside will probably continue to 0.7850.

The mid-Pivot levels for today are as follows: M1 – 0.7865, M2 – 0.7897, M3 – 0.7930, M4 – 0.7962, M5 – 0.7995, M6 – 0.8027.

In weekly terms, the central pivot point is at 0.7906. The three key resistance levels are as follows: R1 – 0.7978, R2 – 0.8028, R3 – 0.8100. The three key support levels are: S1 – 0.7856, S2 – 0.7784, S3 – 0.7734.