EUR/USD Daily Technical Analysis for December 29, 2017

EUR/USD has remained buoyed after clocking a one-month high, at 1.1941, which was 20 pips shy of the late November peak, itself a three-month peak. The high was mostly a reflection of broader dollar weakness, have been trading steady-to-lower over the last day. The ECB’s monthly bulletin was released earlier, and gave an expectedly upbeat prognosis, describing economic growth as being solid and broad-based while noting that underlying inflation is expected to pick up gradually. This has become standard ECB narrative over the last few months, and also helps explain why the euro has been the star performer in 2017 out of the main currencies, with a 13% gain versus the dollar, which is the weakest.

Technicals

The EUR/USD is testing resistance near the November highs at 1,1961. Support is seen near the 20-day moving average at 1.1852.  Momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to a higher exchange rate.

ECB Bulletin Sees Growth

ECB bulletin stresses optimism in economic recovery. The central bank’s latest economic bulletin once again highlighted that the economic expansion is solid and broad based, and also admitted that underlying inflation is expected to pick up gradually. So pretty much as expected, with the ECB slowly laying the ground for a gradual change in guidance as asset purchases are being scaled back to EUR 30 billion from January.

U.S. Jobless Claims Were Unchanged

U.S. initial jobless claims were unchanged at 245k in the December 23 week after climbing 20k in the prior week from 225k. That brings the 4-week moving average up to 237.75k versus the prior 236k. Continuing claims were up 7k to 1,943k following the 47k bounce to 1,936k which was revised from 1,932k. Claims data continue to show a tight labor market.

U.S. Trade Deficit Gapped Wider

U.S. Advance goods trade deficit gapped out to -$69.7 billion deficit in November, the widest since March 2015, after moving out to -$68.1 billion in October. Goods exports rose 3.0% to $133.7 versus $129.9 billion. Goods imports were up 2.7% to $203.4 billion from $198.0 billion. Advance wholesale inventories rebounded 0.7% in November to $610.2 after falling 0.4% in October to $606.0 billion which was revised from $605.7 billion. Advance retail inventories edged up 0.1% to $619.1 billion following October’s unchanged level at $618.5 billion which was revised from $618.0 billion.

UK Mortgage Approvals Missed Expectations

UK mortgage approvals underwhelmed expectations, falling to 39.5k in November from a downwardly revised 40.4k figure for October, according to BBA data. The median had been for 40.5k, while the 39.5 figure is the lowest level of approvals since August 2016. The downward trend in the data series portends less intense demand for residential property three or four months down the track.

Japan November retail sales beat estimates

Sales climbed 1.9% on the month, bouncing from the 0.1% October decline which was revised from unchanged. Strength was in department store sales which climbed 3.0%. The annual pace popped to a 2.2% year over year clip versus -0.2% year over year, with retail up 2.2% year over year versus -1.5% year over year. Total store sales increased 2.1% in November after a 1.8% October gain.

Japanese Industrial production rose 0.6% last month after rising 0.5% previously, also beating expectations. Gains in general machinery production, electronics, and petroleum/coal supported. Production of chemicals and plastics were drags. Compared to last year, production slowed to a 3.7% year over year rate versus October’s 5.9%. Improved economic activity abroad and at home has supported this year’s rally in the Nikkei to levels not seen since early 1992.

Canadian Small Firm Confidence Rose

Canada’s small firm confidence was marginally higher in December, as the CFIB’s Business Barometer edged up to 59.7 in December from 59.3 in November. The index saw a year-high 66.0 in May, having since slid to 56.9 in September before modestly improving through year-end. According to the CFIB, “small business confidence remains muted across much of the county” amid concerns over rising wages and taxes. Notably, the survey revealed a spike in short term wage expectations, with small business planning to boost wages 2.7% over the next three months. This release is a minor release, but is of interest as it is one of the first report to cover December.