EUR/USD Daily Technical Analysis for February 1, 2018

The EUR/USD attempted to move higher but continued to trade in a relatively tight range forming a bull flag pattern that is a pause that refreshes higher. U.S. yield backed up following the larger than expected increase in the number of jobs created in the U.S. in January but were outpaced by European yields which soared to 2.5-year highs.

Technicals

The EUR/USD consolidated on Wednesday, initially attempting to move higher but then falling back to close nearly unchanged forming a doji day where the open and the close are at the same level reflecting indecision.  Support is seen near the 10-day moving average near 1.2341.  Resistance is seen near the January highs at 1.2537.  Momentum is turning neutral as the MACD (moving average convergence divergence) histogram prints in the black with a declining trajectory which points to consolidation.

Eurozone Jobless Rate Was Steady

Eurozone jobless rate steady at 8.7% in December, in line with consensus. We had been looking for a slight improvement in the headline rate as German rates continue to fall to record lows. Youth unemployment is coming down, however, which is encouraging, although at 17.9% for the Eurozone as a whole it remains at high levels, even if this is a marked improved compared to the 20.3% reported in December 2016 and the wide variation in national rates, which range from just 6.6% in Germany to nearly 37% in Spain highlight the need for further reforms.

Eurozone Inflation Remains Subdued

Eurozone January HICP inflation fell back to 1.3% year over year from 1.4% year over year in the previous month. This follows Tuesday softer than expected German HICP rate. Core inflation ticked up to 1.0% year over year from 0.9% year over year, which was in line with consensus and at 1.3% year over year the headline rate also remains far below the ECB’s target, thus adding to the arguments of the doves at the council. Looking ahead the tightening labor market should help to lift inflation, although the strong EUR is keeping a lid on import price inflation and helping to keep price pressures down even as the output gap closes.

French, Spanish inflation readings mixed. French HICP unexpectedly accelerated to 1.5% year over year from 1.2% year over year in the previous month, while the Spanish HICP reading fell back to 0.7% year over year from 1.2% year over year.

German Jobless Numbers Dropped

German jobless numbers dropped -25K in January, more than anticipated and bringing the seasonally jobless rate to a record low of 5.4%, from 5.5% in the previous month. The labor market has been improving, at least officially, although the ECB has highlighted that wider measures of underemployment are much higher.

ECB’s Coeure sees need for ongoing stimulus

The ECB’s Coeure said there are no signs of upward price pressures in the Eurozone, adding that “accordingly, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up, and we expect the ECB’s key interest rates to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases”.

UK Consumer Confidence Increased Unexpectedly

UK consumer confidence unexpectedly lifted according the January Gfk survey, which saw its headline confidence reading rise to -9 from -13, which was a four-year low. All of the reports five sub-components improved, from personal finance situation to the outlook for the UK economy. The rise in confidence seems to tally with labor data showing an unexpected 103k surge in employment. though at a -9 reading, it still remains lower than the -5 reading from the same time last year, and in negative territory for two years now.

German Retail Sales Disappointed

German retail sales weaker than expected, with sales falling -1.9% month over month in January, while December was revised down markedly to 1.9% month over month from 2.3% month over month reported initially. This saw the annual rate falling back to -1.9% from 4.3% year over year in the previous month. Disappointing numbers, although official retail sales data tends to be volatile and only reflects a limited part of consumption.

January U.S. ADP Private Payrolls Beat Expectations

The 234k January ADP rise beat the 195k expectation with a 200k total payroll increase, following a trimming in the big December rise to 242k from 250k that narrowed the gap to the 146k private BLS jobs increase in that month. There was a 22k January rise for goods jobs that undershot robust factory sentiment readings, with restrained gains of a 12k for factories, 9k for construction, and 1k for mining. Yet, there was a big 212k service employment climb. The “as reported” ADP figures have overshot private payrolls in every month since the methodology change of October 2016 except April, June, and November of 2017, leaving an average overshoot of 44k and an average monthly 2017 gain of a solid 212k, versus 168k for BLS private payrolls.