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Forex Market: EUR/USD daily trading outlook

Yesterday’s trade saw EUR/USD within the range of 1.0867-1.0940. The pair closed at 1.0893, shedding 0.23% on a daily basis. It has been the seventh drop in the past eleven trading days.

At 7:09 GMT today EUR/USD was losing 0.24% for the day to trade at 1.0867. The pair touched a daily low at 1.0863 at 7:08 GMT, undershooting the lower range breakout level (S4) and making a lower-low test of the low from January 18th.

On Tuesday EUR/USD trading may be influenced by the following macroeconomic reports listed below.

Fundamentals

Euro area

ZEW Survey

The gauge of economic sentiment in Germany probably fell to a reading of 9.0 in January, according to the median forecast by experts, from 16.1 in December. The latter has been the highest reading since August 2015, when the gauge was reported at 25.0.

The ZEW (Zentrum für Europäische Wirtschaftsforschung) economic expectations index is reported on a monthly basis. 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 slowed down to 54.0 in January, according to market expectations, from a reading of 55.0 registered in December. If expectations were met, Januarys reading would be the lowest since February 2015, when a level of 45.5 was reported.

The ZEW Economic Sentiment index for the whole Euro region probably dropped to a reading of 27.9 in January, according to market expectations, from 33.9 in the preceding month. The latter has been the highest index level since August 2015, when the gauge stood at 47.6.

In case the German gauge of economic sentiment decreased at a sharper pace than expected, this would have a strong bearish effect on the common currency. The official readings are scheduled to be released at 10:00 GMT.

Consumer price inflation – final estimate

The final annualized consumer inflation in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably confirmed the preliminary rate of 0.2% in December, which was reported on January 5th. In November annual inflation rate was reported at a final 0.2%, up from a preliminary rate of 0.1%.

According to the provisional data, in December prices of food, alcohol & tobacco are expected to surge the most (+1.2% year-on-year, following a 1.5% gain in November), followed by cost of services (+1.1%, following a 1.2% gain in November) and cost of non-energy industrial goods (+0.5%, or steady compared to a month ago). On the other hand, cost of energy is expected to drop 5.9% in December compared to the same month a year ago, following a 7.3% slump in November.

In case the HICP exceeded expectations, thus, further approached the 2% inflation objective set by the ECB, this would support demand for the euro, because it would imply that monetary policy measures have begun to work in favor of economic activity.

The final annualized Core HICP for December probably rose 0.9%, accelerating from a preliminary 0.8% surge, which was reported on January 5th. In November the final Core HICP increased at an annual rate of 0.9%, matching the preliminary rate. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the final inflation report at 10:00 GMT.

United States

NAHB Housing Market Index

The National Association of Home Builders (NAHB) Housing Market Index probably remained at 61.0 for the second consecutive month in January, according to market expectations. If so, this would be the 19th consecutive month, when the gauge stood in the area above 50.0. In November the index was reported at 62.0. The indicator is based on a monthly survey in regard to current home sales and expected sales in the coming six months. Values above the key level of 50.0 indicate that housing market conditions are good. Therefore, higher-than-projected readings would provide a moderate support to the US dollar. The official report is scheduled for release at 15:00 GMT.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.385% on January 18th, after which it closed at -0.394% to lose 0.002 percentage point in comparison with January 15th. It has been the 16th drop in the past 24 trading days and also a fourth consecutive one.

The yield on US 2-year government bonds climbed as high as 0.854% on January 18th, after which it closed at 0.849% to lose 0.001 percentage point compared to January 15th. It has been the 16th drop in the past 24 trading days and also a fifth consecutive one.

The spread between 2-year US and 2-year German bond yields, which reflects the flow of funds in a short term, widened to 1.243% on January 18th from 1.242% on January 15th. The January 18th yield spread has been the largest one since January 14th, when the difference was 1.282%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.497% on January 18th, after which it slid to 0.469% at the close to lose 0.004 percentage point compared to January 15th. It has been the 13th drop in the past 24 trading days and also a fifth consecutive one.

The yield on US 10-year government bonds climbed as high as 2.047% on January 18th, after which it slipped to 2.045% at the close to add 0.008 percentage point compared to January 15th. It has been the 10th gain in the past 24 trading days.

The spread between 10-year US and 10-year German bond yields widened to 1.576% on January 18th from 1.564% on January 15th. The January 18th yield difference has been the largest one since January 14th, when the spread was 1.584%.

Daily and Weekly Pivot Levels

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

R1 – 1.0900
R2 – 1.0906
R3 (range resistance) – 1.0913
R4 (range breakout) – 1.0933

S1 – 1.0886
S2 – 1.0880
S3 (range support) – 1.0873
S4 (range breakout) – 1.0853

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

Central Pivot Point – 1.0902
R1 – 1.1002
R2 – 1.1086
R3 – 1.1186

S1 – 1.0818
S2 – 1.0718
S3 – 1.0634

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