EUR/USD Daily Technical Analysis for December 27, 2017

The holiday shortened week will be a very quiet one, with preliminary December HICP inflation from Spain and Germany scheduled to be released Friday will be the key highlights for the week. Both countries have been reporting headline numbers above the Eurozone average in recent months and both are expected to see annual rates falling back at the end of the year. U.S. markets will now turn their focus to forecasts following the tax cut signed into law at the of last week.  The corporate tax cut is a big issue and could provide the backdrop for a further rise in riskier assets.  Strong housing data in November out of the U.S. has also been a surprise especially given the new tax law that will make property deductions more difficult.

Technicals

The EUR/USD continued to consolidate and will likely remain range bound for the balance of 2017.  The exchange rate is support by the 10-day moving average which comes in near 1.1828, with resistance seen near the November highs at 1.1961.  Momentum is positive to neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flat trajectory which points to consolidation.

Inflation in Europe Headlines the Week

The German HICP rate is seen at 1.6% year over year down from 1.8% year over year in November, the Spanish reading at 1.5% year over year  also down from 1.8% year over year. The uptick in November was largely due to energy prices, which have remained a key driving factor, allowing Draghi to focus on still weak core readings, which voicing dissatisfaction with modest wage growth that hasn’t quite matched the improvement on labor markets across the Eurozone.

Still, while Draghi stuck to dovish guidance in December, the tone is set to change gradually in 2018, with QE likely to be phased out from September onwards. Whether this won’t be already too late for some countries remains to be seen, but the December inflation numbers clearly won’t hurry things up. Other data releases include Eurozone M3 money supply growth for November, where the focus is again likely to be on credit growth rather than headline M3 rates.

U.S. Producer Sentiment Remains Solid

U.S. Producer sentiment has remained robust into year-end as September’s post-hurricane spike largely remains, and with a potential new updraft with the passage of the new tax law. The Empire State slipped to 18.0 from 19.4, but the ISM-adjusted index improved to 55.0 from 54.7. The Philly Fed rose to 26.2 from 22.7, while the ISM-adjusted index rose to a solid 57.7 from 56.7 last month. We expect the ISM-adjusted average of the major surveys to maintain November’s 57 average, which was down from 58 in October and a 59 cycle-high in September.

Japanese Consumer Prices Increased in November

Japanese core consumer prices increased 0.9% in November year over year, according to the Ministry of Internal Affairs and Communications. The core consumer price index, increased for the 11th consecutive month, rising from 0.85 in October. The index, however, still remained a long way below the Bank of Japan’s target of 2%. The increase was driven by an increase in gasoline and utility prices according to the statistics bureau. Excluding energy and fresh foods, “core-core” consumer prices rose just 0.3% year over year. As for CPI for Tokyo’s it was up 0.8% in December from a year earlier.