The EUR/USD Continues to Trend Lower as U.S. Yields Rise

The EUR/USD moved lower declining for the 5^th consecutive day as U.S. yields continued to trend higher, widening the interest rate differential between the U.S. treasury and the German bund.  The Eurozone trade surplus widened as exports picked up nearly in tandem with imports while the current account narrowed as slight improvements in goods trade and services balances led to the contraction.

Technicals

The EUR/USD moved lower continuing to trend lower as short-term momentum accelerated lower.  Resistance is seen near an upward sloping trend line near 1.1840. Support is seen near the December lows at 1.1725.  Short-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occur as the MACD line (the 5-day moving average minus the 13-day moving average) crosses below the 6-day moving average of the MACD line.

German PPI inflation rose

German PPI inflation rose to 2.0% year over year from 1.8% year over year in the previous month and in line with our median. Reported separately wholesale price inflation rose to 1.4% year over year from 1.2% year over year. More signs then that underlying inflation is slowly but steadily moving higher, even if PPI inflation does remain below the highs seen last year.

Eurozone trade surplus widened

Eurozone trade surplus widened marginally in March to EUR 21.2 billion from EUR 20.9 billion in February. That left the total for the first quarter at EUR 62.1 billion, marginally higher than the EUR 61.6 billion reported in Q4 last year. Exports as well as imports picked up in March, after contracting sharply in February. Unadjusted data show a surplus of EUR 26.9 billion, versus a surplus of EUR 28.5 billion in March 2017. The total for the first quarter, however, lifted to EUR 49.4 billion, from EUR 42.9 billion in the first quarter last year.

Eurozone current account narrowed

Eurozone current account narrowed to EUR 32.0 billion in March from EUR 36.8 billion in the previous month. The three months trend average declined to EUR 36.2 billion from EUR 36.9 billion in the three months to February. The details show slight improvements in goods trade and services balances, but the surplus in the primary income balance declined, as did the secondary income balance. Unadjusted data show direct and portfolio investment worth EUR 30.1 billion, bringing the accumulated total for the 12 months to March to EUR 418.5 billion, considerably less than the EUR 603.9 billion in the 12 months to March last year.

ECB’s Lane says hard Brexit is not very likely

ECB’s Lane says hard Brexit is not very likely. Asked whether he expects a hard Brexit the Irish central bank head said “I don’t hink it is very likely”, but stressed that “even if you don’t think it is very likely, you have to prepare for it”. Speaking on March 27 Lane said “I don’t think it is increasingly unlikely the momentum is there towards some kind of solution. But it is a tail risk that has to be prepared for by financial firms and by the Irish public policy system”.

Rehn to succeed Liikanen as head of Finnish central bank

Rehn to succeed Liikanen as head of Finnish central bank. The ECB nominee is the former EU Commissioner for economic and monetary affairs and said earlier the “jury is still out” on whether the slowdown in economic growth at the start of the year is temporary “something more permanent”. He added that “in the short term, the risks are relatively balanced, but in the medium term they tend toward the downside”.

Fed’s Mester said the U.S. economy is nearing the FOMC’s two goals

Fed’s Mester said the U.S. economy is nearing the FOMC’s two goals in her comments on “A Practical Viewpoint on Financial System Resiliency and Monetary Policy.” But she didn’t really address the Fed’s current policy path. She added the outlook is “one of the most favorable we have seen in a long time.” While underscoring the need to learn lessons from the past crisis, she also noted it’s an open question whether monetary policy should be used to address financial stability risks. Given the limits on macroprudential tools, she said it is important to ensure the structural resilience of the financial system. And it’s important to monitory the resiliency of the latter and be “cognizant of the interlinkages between monetary policy, financial imbalances, and financial stability risks.”