The EUR/USD Consolidates as Soft U.S. PPI Weighs on the Dollar

The EUR/USD stabilized forming a doji day where the open and the close are the same level which reflects indecision. Softer than expected U.S. April PPI took some of the zip out of U.S. yields, allowing the dollar to ease against most major currencies.  French Industrial Production was softer than expected which generated headwinds for the European currency.

Technicals

The EUR/USD rebounded from session lows forming a doji day, which reflects indecision. Support is seen near the December 2017 lows at 1.1727. Resistance on the currency pair is seen near the 10-day moving average seen near 1.1985. The 10-day moving average crossed below the 200-day moving average which shows that a short-term downtrend is now in place. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward trajectory which points to a lower exchange rate. This is countered by an oversold currency pair. The fast stochastic is printing a reading of 8, well below the oversold trigger level of 20, which could foreshadow a correction.

U.S. PPI Was Softer than Expected

U.S. April PPI rose 0.1%, with the core up 0.2% after gains of 0.3% for both in March. Expectations were for the headline number to increase by 0.2%. The headline is a little softer than expected, while the core hit the mark. Prices of goods were unchanged following the hotter 0.3% increase previously. Energy prices edged up 0.1% from -2.1%, while food prices fell 1.1% versus the prior 2.2% gain. Costs in the service sector were 0.1% higher following March’s 0.3% gain. On a year over year basis, headline PPI slowed to 2.6% year over year versus 3.0% year over year, and the core slipped to 2.3% year over year from 2.7% year over year.

French industrial production dropped

French industrial production dropped -0.4% month over month, much lower than market consensus, which predicted another rise of 0.4% month over month, after a 1.1% month over month which was revised down from 1.2% in February. Manufacturing rose 0.1% month over month and the correction in March was largely due to a -8.3% month over month drop in coke and refinery activity. The annual rates fell back to 1.8% year over year from 3.8% year over year for industrial production and to just 0.4% year over year for manufacturing, from 2.3% year over year in the previous month.

UK retail sales came in much weaker than expected

UK retail sales came in much weaker than expected at -4.2% year over year in the headline April same-store measure from the BRC. The median forecast had been for a much more modest decline of 0.8% year over year. Total sales were down 3.1% year over year, which is the sharpest drop since the data series was started in 1995. The outsized fall is partly blamed on the timing of Easter this year, which concentrated spending in March rather than in April as had been the case last year, though the BRC reported that there was also underlying trend weakness is afoot. Discretionary spending has been declining, linked to economic uncertainty and the shadow of unresolved Brexit issues and possible consequences.

U.S. MBA mortgage market index sank

U.S. MBA mortgage market index sank 0.4% and was accompanied by a 0.2% decline in the purchase index and a 0.6% drop in the refinancing index for the week ended May 4. The average 30-year fixed mortgage rate fell 2 basis points to 4.78% after the FOMC underscored the symmetry of its inflation target and the April payrolls miss, not that this provided much comfort to mortgage buyers with the T-note topping 3.0%.