Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7797-0.7831. The pair closed at 0.7811, gaining 0.06% on a daily basis.

At 7:27 GMT today EUR/GBP was down 0.18% for the day to trade at 0.7797. The pair touched a daily low at 0.7795 at 6:45 GMT.

Fundamental view

Euro zone

German unemployment

The number of the unemployed people in Germany probably dropped by 2 000 in September, according to the median forecast by experts, following an increase by 1 000 during August. A decrease implies that consumer spending may be more active, while the latter is tightly related to economic growth. An increase implies the opposite.

At the same time, the seasonally adjusted rate of unemployment in the country probably remained unchanged at 6.7% in September. In July 2.03 million people were unemployed, while compared with July 2013, their number dropped by 215 000, or 9.4%, according to Destatis. In July approximately 42.6 million persons resident in Germany were in employment, according to provisional figures, while compared with July last year, this was an increase by 344 000 persons, or 0.8%.

In case the number of the unemployed decreased more than projected and the unemployment rate dropped, this would have a bullish effect on the euro. The Federal Statistics Office will release the official data at 7:55 GMT.

Italian unemployment

The rate of unemployment in Italy probably remained steady at 12.6% in August. In July the number of unemployed persons was reported at 3.22 million, or an increase by 2.2% in comparison with the prior month. Unemployment rate among persons aged 15-24 was 42.9% in July, or a drop by 0.8 percentage points compared to June, according to data by Istat. The number of people employed was reduced to 22.36 million in July, or a 0.2% decrease compared to a month ago. In case the rate of unemployment lowered, this might provide support to the common currency. Istat is to report the official rate at 8:00 GMT.

Euro zone Harmonized CPI and rate of unemployment

The annualized preliminary consumer price index in the Euro zone, evaluated in accordance with Eurostat’s harmonized methodology, probably fell to 0.3% in September, according to the median estimate by experts. If confirmed, this would be the lowest level of the HICP since October 2009. In August the HICP has been revised up to 0.4%, up from a preliminary estimate of 0.3%. Last month negative annual inflation was observed in Spain (-0.5%), Estonia, Greece, Italy (all -0.2%), Portugal (-0.1%), according to Eurostat. The most considerable upward impacts to annual inflation in the Euro region came from restaurants & cafés (+0.08 percentage points), rents (+0.07%) and maintenance of vehicles (+0.05%), while fuels for transport (-0.17%), fruit (-0.12%) and telecommunications (-0.11%) caused the largest downward impacts.

The index shows the change in price levels of a basket of goods and services from consumer’s perspective and also reflects purchasing trends. The main components of the HICP are food, alcohol and tobacco (accounting for 19% of the total weight), energy (11%), non-energy industrial goods (29%) and services (41%).

The HICP is used to evaluate and compare inflation rates between Member States, according to Art. 121 of the Amsterdam’s Agreement and directives by the European Central Bank (ECB), in order the latter to achieve price stability and the implementation of monetary policy. The HICP aggregates are calculated as a weighted average of each member state’s HICP components.

In case the HICP slowed down more than anticipated, thus, distancing from the 2% inflation objective set by the ECB, this would mount selling pressure on the euro, because of the greater possibility of introducing additional monetary policy measures in order to stimulate economic activity.

The annualized preliminary Core HICP for September probably matched the final Core HICP for August, reported at 0.9% on September 17th. In July annualized core inflation was reported at 0.8%. This index excludes volatile categories such as food, energy, alcohol and tobacco. Eurostat is scheduled to release the official inflation data at 9:00 GMT.

At the same hour, Eurostat will announce the rate of unemployment in the Euro region for August. It probably was at 11.5%, or matching the rate in July and June and also being the lowest since September 2012. 24.850 million persons in the European Union, of whom 18.409 million were in the Euro Area, were unemployed in July, according to Eurostat. Compared with June, the number of people unemployed dropped by 41 000 in the EU28 and remained almost unchanged in the Euro Area. In comparison with July 2013, the unemployed were 1.634 million less in the EU28 and 725 000 less in the Euro Area.

Unemployed are considered to be all persons aged between 15 and 74, who have not been hired during the survey period, have been actively seeking employment during the past four weeks and are able to accept any job proposition right away or in two weeks time. A drop in unemployment would support the single currency.

Italian consumer inflation

Italys annualized preliminary index of consumer prices (CPI) probably climbed to 0.0% in September, according to market expectations. In August the annualized CPI was reported at -0.1%, due to a drop in enery prices. This was the first time in almost 55 years, when Italian consumer inflation entered negative territory. Prices of energy fell at an annualized rate of 3.6% in August, mostly driven by a 1.2% drop in cost of non-regulated energy products. Additional downward pressures came from food prices (-0.5%), and communication (-9.0%), according to Istat. In July the annualized consumer inflation was at 0.1%.

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.

Nations annualized preliminary CPI, evaluated in accordance with the harmonized methodology, probably improved to -0.1% in September, from -0.2% in August. The National Institute of Statistics (ISTAT) is to release the official CPI report at 9:00 GMT.

United Kingdom

GDP – final estimate

The final estimate of United Kingdoms GDP probably confirmed the 2nd estimate, released on August 15th, that economy expanded at a rate of 3.2% during the second quarter of the year compared to the same period a year ago. If so, this would be the highest rate of economic growth since the last quarter of 2007. UK economy expanded at an annualized rate of 3.0% in the first quarter of the current year and has also been growing persistently since Q4 2012.

Within the period of Q2 2013 and Q2 2014 construction in the United Kingdom is estimated to have expanded 4.2%, marking a fifth successive period of gains, beginning in Q2 2013. This followed five consecutive quarters of year-on-year negative growth. Output in key sectors such as business services and finance rose 4.2%, industrial activity expanded 2.2%, while the segment of transport, storage and communication added 2.2 %.

On a quarterly basis, the final estimate of UK GDP probably also matched the second estimate of a 0.8% growth during Q2. During the second quarter of 2014 nations GDP was estimated to be 0.2% above the pre-downturn peak, registered during Q1 2008. From that peak to the trough in 2009, UK economy contracted 7.2%, according to the Office for National Statistics (ONS).

The GDP represents the total monetary value of all goods and services produced by one nation over a specific period of time. What is more, it is the widest indicator of economic activity in the country. The report on GDP is of huge importance for traders, operating in the Foreign Exchange Market, because it serves as evidence of growth in a well-performing economy, or as evidence of contraction in an unproductive one. As a result, currency traders will look for higher rates of growth as a signal that interest rates may follow the same direction. Higher interest rates will usually attract more investors, willing to purchase assets in the UK, while, at the same time, this will increase demand for the pound. Therefore, in case growth rate confirmed or even exceeded market expectations, this would provide support to the local currency. The Office for National Statistics is expected to release the final GDP estimate at 8:30 GMT.

Current Account

The deficit on United Kingdoms current account probably shrank to 17.000 billion GBP during the second quarter of the year, according to expectations, from a deficit figure of 18.495 billion GBP in Q1. If so, this would be the least deficit since Q2 2012. The country had a record high deficit at the amount of 23.519 billion GBP during the last quarter of 2013.

The current account represents the sum of a nations balance of trade, net factor income (interest and dividends) and net transfer payments (foreign aid). A current account deficit suggests that the country has a status of a net borrower from the rest of the world. A net borrower is consuming more than it is producing, which means that other countries are lending it their savings. This way foreign liabilities are created. In case of contracting deficit on United Kingdoms current account, this would have a bullish effect on the sterling.

The Office for National Statistics is expected to release the official data at 8:30 GMT.

Technical view

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7813. In case EUR/GBP manages to breach the first resistance level at 0.7829, it will probably continue up to test 0.7847. In case the second key resistance is broken, the pair will probably attempt to advance to 0.7863.

If EUR/GBP manages to breach the first key support at 0.7795, it will probably continue to slide and test 0.7779. With this second key support broken, the movement to the downside will probably continue to 0.7761.

The mid-Pivot levels for today are as follows: M1 – 0.7770, M2 – 0.7787, M3 – 0.7804, M4 – 0.7821, M5 – 0.7838, M6 – 0.7855.

In weekly terms, the central pivot point is at 0.7827. The three key resistance levels are as follows: R1 – 0.7871, R2 – 0.7935, R3 – 0.7979. The three key support levels are: S1 – 0.7763, S2 – 0.7719, S3 – 0.7655.