Forex Market: EUR/USD daily trading outlook

Yesterday’s trade saw EUR/USD within the range of 1.0924-1.1029. The pair closed at 1.0947, losing 0.71% on a daily basis, or the most since November 20th, when it fell 0.82%. It has been the first drop in the past three trading days.

At 7:26 GMT today EUR/USD was up 0.01% for the day to trade at 1.0943. The pair touched a daily high at 1.0950 at 6:25 GMT, undershooting the daily R1 level. Resistance may be encountered at the psychological 1.1000 level first, then at the daily 100-period EMA and finally at the high from December 9th (1.1041).

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

Fundamentals

Euro area

Italy – industrial production

Annualized industrial production in Italy probably expanded 2.0% in October, according to the median forecast by experts, following another 1.7% increase in the prior month. If expectations were met, October would be the fourth consecutive month of expansion and also the sharpest one since July. At the same time, the seasonally adjusted index of industrial production probably rose 0.3% in October compared to September, following a 0.2% expansion in the preceding month. The index reflects the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case annual output increased at a faster rate than anticipated, this would have a limited bullish effect on the common currency, as it would suggest a greater possibility of inflationary pressure build-up. The National Institute of Statistics (Istat) is to release the official industrial data at 9:00 GMT.

United States

Retail Sales

Retail sales in the United States probably rose 0.3% in November on a monthly basis, according to the median forecast by experts. In October sales were up another 0.1%, after remaining flat in the previous two months.

Among the 13 major categories, 7 registered growth, 5 showed declines and 1 showed no change. In October, the largest increases were reported for miscellaneous store retailers (+1.8%), non-store retailers (+1.4%), building material and garden equipment dealers (+0.9%), health and personal care stores (+0.7%), food services and drinking places (+0.5%) and furniture and home furniture stores (+0.4%). On the other hand, the largest decrease in sales was recorded at gasoline stations (-0.9%). Lower sales were reported also for motor vehicle and parts leaders (-0.5%), electronics and appliances stores (-0.4%), general merchandise stores (-0.4%) and food and beverages stores (-0.3%), according to the report by the US Census Bureau.

Annualized retail sales surged 1.7% in October, following a 2.2% climb in September. Octobers rate of increase has been the slowest one since April 2015, when sales rose 1.3%.

US core retail sales, or retail sales ex autos, probably went up 0.3% in November compared to a month ago, following a 0.2% climb in October. This indicator removes large ticket prices and historical seasonality of automobile sales.

In case monthly retail sales increased at a sharper-than-expected rate in November, this would have a strong bullish effect on the US dollar. The official report by the US Census Bureau is due out at 13:30 GMT.

Producer Prices

Annual producer prices in the United States probably fell for a 10th month in a row in November, by 1.2%, according to the median estimate by experts. In October the annualized Producer Price Index (PPI) dropped 1.6%, or the most since October 2009, when a 1.9% slump was reported. It reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The Producer Price Index (PPI) differs from the Consumer Price Index (CPI), which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. In case annual producer prices fell at a lesser rate than anticipated, this would have a moderate bullish effect on the US dollar.

The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably accelerated to 0.2% in November from 0.1% in the prior month. The latter has been the lowest annual surge in the core PPI in more than eight years. The Bureau of Labor Statistics is expected to report on the official PPI performance at 13:30 GMT.

Reuters/Michigan Consumer Sentiment Index – preliminary estimate

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States was little changed in December. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably slipped to 91.0 during the current month from a final reading of 91.3 in November. The latter came below the preliminary reading of 93.1, which was reported on November 13th. The survey encompasses about 500 respondents throughout the country. The index is comprised by two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.

The sub-index of current economic conditions decreased to a final reading of 104.3 from a preliminary 104.8 in November, after a month ago it stood at 102.3.

The sub-index of consumer expectations came in at a reading of 82.9, up from a preliminary value of 82.1 in November, but lower compared to a final reading of 85.6, registered in October.

Participants in the November survey expect that the rate of inflation will accelerate to 2.7% during the next year from 2.5% in the preliminary report and unchanged compared to October.

In case the gauge of consumer sentiment decreased at a steeper pace than projected in December, this would have a moderate-to-strong bearish effect on the greenback. The preliminary reading is due out at 15:00 GMT.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.317% on December 10th, after which it closed at -0.329% to lose 1.3 basis points (0.013 percentage point) in comparison with December 9th. It has been 10th drop in the past 14 trading days and also a fourth consecutive one.

The yield on US 2-year government bonds climbed as high as 0.955% on December 10th, or matching the high from the prior day, after which it closed at 0.947% to add 2.4 basis points (0.024 percentage point) compared to December 9th. It has been the 14th gain in the past 19 trading days.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, widened to 1.276% on December 10th from 1.239% on December 9th. The December 10th yield spread has been the largest one since December 2nd, when the difference was 1.382%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.600% on December 10th, after which it slid to 0.577% at the close to lose 1.6 basis points (0.016 percentage point) compared to December 9th. It has been the 9th drop in the past 14 trading days.

The yield on US 10-year government bonds climbed as high as 2.239% on December 10th, after which it slipped to 2.234% at the close to add 1.8 basis points (0.018 percentage point) compared to December 9th. It has been the 6th gain in the past 19 trading days.

The spread between 10-year US and 10-year German bond yields widened to 1.657% on December 10th from 1.623% on December 9th. The December 10th yield difference has been the largest one since December 2nd, when the spread was 1.710%.