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Forex Market: EUR/USD daily trading outlook

Friday’s trade saw EUR/USD within the range of 1.0924-1.1033. The pair closed at 1.0990, rising 0.46% on a daily basis. It has been the third gain in the past five trading days. The daily low was an exact test of the low from December 10th. In weekly terms, EUR/USD appreciated 0.96% last week, while marking a second straight week of advance. The pair has gained 3.74% so far during the current month, after three successive months of decline.

At 7:40 GMT today EUR/USD was losing 0.30% for the day to trade at 1.0960. The pair touched a daily low at 1.0950 at 7:31 GMT, overshooting the range support level (S3).

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

Fundamentals

Euro area

Italy – consumer inflation (final estimate)

Italys final annualized consumer inflation probably matched the preliminary inflation estimate of 0.1% in November, which was reported on November 30th. If so, this would be the seventh consecutive month, when the annual rate of inflation stayed positive. In October the final annualized CPI climbed 0.3%, also matching the preliminary estimate.

Key categories, included in Italys Consumer Price Index, are food and non-alcoholic beverages (accounting for 16% of total weight), transport (15%), restaurants and hotels (11%) and housing, water, electricity and other fuels (10%). Other categories are clothing and footwear (9%), furnishing and household equipment (8%), recreation and culture (8%) and health (also 8%). Communication, education, alcoholic beverages, tobacco and other goods and services comprise the remaining 15% of the index.

The nations final annualized CPI, evaluated in accordance with the harmonized methodology, probably increased 0.1% in November, according to market expectations. If so, this would match the preliminary HICP estimate, reported on November 30th, and would also be the seventh month in a row with a positive harmonized inflation rate. In October the final annualized HICP rose at a pace of 0.3%, or in line with the provisional estimate. The National Institute of Statistics (Istat) is to release the official CPI report at 8:00 GMT.

Euro area – industrial production

The seasonally adjusted index of industrial production in the Euro area probably advanced 0.2% in October compared to a month ago, according to market expectations, following two consecutive months of declines. In September industrial output shrank 0.3%.

Annualized output probably increased at a pace of 1.3% in October, according to the median forecast by experts. If so, this would be the 11th consecutive month, when annual output grew. In September industrial production expanded 1.7% year-on-year. Septembers index performance was boosted by production of durable consumer goods (an increase by 2.6%), production of capital goods (an increase by 2.2%), non-durable consumer goods (up 2.1%) and intermediate goods (up 1.8%). At the same time, production of energy shrank 1.4% year-on-year during the same period.

In September, the highest annual increases in industrial output were reported for Ireland (+14.6%), Hungary (+7.9%), Slovakia (+7.2%) and Sweden (+7.1%), while the most considerable decreases were registered in the Netherlands (-5.6%), Estonia (-4.1%) and Lithuania (-0.6%).

The index, reflecting the business cycle, measures the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case annualized industrial output expanded at a larger rate than anticipated, this would have a moderate bullish effect on the euro, as it implies a greater probability of inflationary pressure occurring. Eurostat is to publish the official data at 10:00 GMT.

Correlation with other Majors

Taking into account the week ended on December 13th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

EUR/USD to GBP/USD (0.8351, or very strong)
EUR/USD to NZD/USD (0.7282, or strong)
EUR/USD to USD/CAD (0.6243, or strong)
EUR/USD to AUD/USD (-0.4796, or moderate)
EUR/USD to USD/JPY (-0.9195, or very strong)
EUR/USD to USD/CHF (-0.9705, or very strong)

1. During the examined period EUR/USD moved strongly in one and the same direction with NZD/USD and USD/CAD.

2. EUR/USD moved almost equally in one and the same direction with GBP/USD during the week, while moving almost equally in the opposite direction compared to USD/JPY and USD/CHF.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.325% on December 11th, after which it closed at -0.343% to lose 1.2 basis points (0.012 percentage point) in comparison with December 10th. It has been the 11th drop in the past 15 trading days and also a fifth consecutive one.

The yield on US 2-year government bonds climbed as high as 0.959% on December 11th, or the highest level since December 7th (0.967%), after which it closed at 0.879% to lose 6.8 basis points (0.068 percentage point) compared to December 10th. It has been the 6th drop in the past 20 trading days.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, shrank to 1.222% on December 11th from 1.278% on December 10th. The December 11th yield spread has been the lowest one since November 16th, when the difference was 1.219%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.584% on December 11th, after which it slid to 0.543% at the close to lose 2.7 basis points (0.027 percentage point) compared to December 10th. It has been the 10th drop in the past 15 trading days and also a second consecutive one.

The yield on US 10-year government bonds climbed as high as 2.239% on December 11th, or matching the high from the preceding trading day, after which it slipped to 2.132% at the close to lose 10.2 basis points (0.102 percentage point) compared to December 10th. It has been the 14th drop in the past 20 trading days.

The spread between 10-year US and 10-year German bond yields shrank to 1.589% on December 11th from 1.664% on December 10th. The December 11th yield difference has been the lowest one since December 4th, when the spread was 1.583%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for EUR/USD are presented as follows:

R1 – 1.1000
R2 – 1.1010
R3 (range resistance) – 1.1020
R4 (range breakout) – 1.1050

S1 – 1.0980
S2 – 1.0970
S3 (range support) – 1.0960
S4 (range breakout) – 1.0930

By using the traditional method of calculation, the weekly pivot levels for EUR/USD are presented as follows:

Central Pivot Point – 1.0942
R1 – 1.1091
R2 – 1.1191
R3 – 1.1340

S1 – 1.0842
S2 – 1.0693
S3 – 1.0593

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