Forex Market: EUR/USD trading forecast for Monday

Friday’s trade saw EUR/USD within the range of 1.1999-1.2110. The daily low has been the lowest level since June 10th 2010. The pair closed at 1.2003, losing 0.83% on a daily basis and 1.42% for the whole week. On Monday (December 5th) the cross may be influenced by a number of fundamentals, as listed below.

Fundamentals

Euro zone

Sentix Investor Sentiment

Confidence among investors in the Euro zone probably continued to improve during the current month, with the corresponding index coming in at a reading of -0.9. In December it stood at -2.5, while in November – at -11.9. If so, this would be the fifth consecutive month, during which the gauge occupied negative territory. The index is based on results from the SENTIX survey, one of the most prominent surveys, reflecting investors’ opinion in Germany. It encompasses 2 800 respondents, with 510 of them being institutional investors. Respondents present their expectations regarding ten different markets for a period of one and six months. Readings above zero indicate that respondents were predominantly optimistic, while readings below zero show pessimism. Higher-than-expected readings would have a bullish effect on the common currency. The official index value is due out at 9:30 GMT on Monday.

German consumer inflation – preliminary estimate

German preliminary annualized consumer inflation probably decelerated to 0.4% in December, according to the median forecast by analysts, from 0.6% in November. If so, this would be the lowest annual inflation since November 2009, when the final CPI rose 0.4%. Energy prices dropped at an annualized rate of 2.5% in November. Prices were down in particular for heating oil (-9.8%) and motor fuels (-4.5%). Prices of electricity, on the other hand, were up 1.9%, following another 1.8% gain in October. Food prices remained without change compared to November 2013, while cost of services rose above average, or 1.4% compared to November 2013, supported mainly by the 1.4% increase in net rents, according to the report by Destatis.

The Consumer Price Index (CPI) presents a general picture of the price change in the country, while encompassing all household types, all regions and all goods and services demanded (food, clothing, automobiles, rental, repair and hairdressing services etc). The index is based on a basket of goods and services, which is regularly renewed, so that goods and services, purchased more often by consumers, are included in the present survey.

The nation’s preliminary annualized inflation, evaluated in accordance with the harmonized methodology, probably decelerated to 0.2% in December, after being at 0.5% in November. The harmonized methodology is used for the sake of consumer inflation comparison in an international context (member-countries in the Euro area). In case the CPI came below expectations and further distanced from the 2-percent inflation objective, set by the European Central Bank, this would certainly mount selling pressure on the euro. Destatis is scheduled to publish the preliminary CPI data at 13:00 GMT on Monday.

ECB policy

On Friday the common currency plunged to lows unseen since June 2010, as the European Central Bank indicated it is to begin a wide-scale government-bond purchasing program. In Germany policy makers criticized this move, as in their view, quantitative easing poses a threat to financial stability and lowers the incentive for governments to restructure local economies.

In addition, the ECB President Mario Draghi said that the risk of deflationary processes emerging in the Euro area could not be entirely excluded, but was limited. He called for immediate actions against such a risk.

“Those who are subtly encouraging the lower euro, they won’t be satisfied yet,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone on Friday, cited by Bloomberg. The extent of euro weakness “really does come down to the composition and size of this sovereign QE that they’re talking about”, he added.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.2037. In case EUR/USD manages to breach the first resistance level at 1.2076, it will probably continue up to test 1.2148. In case the second key resistance is broken, the pair will probably attempt to advance to 1.2187.

If EUR/USD manages to breach the first key support at 1.1965, it will probably continue to slide and test 1.1926. With this second key support broken, the movement to the downside will probably continue to 1.1854.

The mid-Pivot levels for today are as follows: M1 – 1.1890, M2 – 1.1946, M3 – 1.2001, M4 – 1.2057, M5 – 1.2112, M6 – 1.2168.

In weekly terms, the central pivot point is at 1.2075. The three key resistance levels are as follows: R1 – 1.2151, R2 – 1.2299, R3 – 1.2375. The three key support levels are: S1 – 1.1927, S2 – 1.1851, S3 – 1.1703.