EUR/USD Daily Technical Analysis for February 14, 2018

The EUR/USD headed higher on Tuesday and was testing resistance at the tail end of the North American Trading session.  There was little fundamental news to drive yields, but U.S. treasuries were soft allowing the yield differential to German to move in Europe’s favor. French wage growth decelerated in the Q4 and the U.S. posted a budge surplus for January, but it was less than expected. U.S. Chain Store Sales rebounded, and the White House revealed part of its budget.

Technicals

The EUR/USD pushed toward resistance trading near the 10-day moving average at 1.2355 toward the end of the North American trading session. A close above this level would lead to a re-test of the highs seen near 1.2537. Support is seen near the 10-day moving average at 1.2090.  Momentum is negative but the trajectory of the MACD (moving average convergence divergence) histogram is rising which reflects the beginning of consolidation. The fast stochastic has continued to reverse higher after generating a crossover buy signal, when it was in oversold territory.  The RSI moved higher from a choppy sideways print, which reflects accelerating positive momentum.

French wage growth decelerated in Q4

French wage growth decelerated in Q4, with the quarterly rate slowing to just 0.1% from 0.3% quarter over quarter previously, against Bloomberg consensus for a rise of 0.2% quarter over quarter. Private sector payrolls picked up 0.3% quarter over quarter, in line with expectations and Bloomberg consensus, but the slowdown in wage growth will add to the arguments of the doves at the ECB.

U.S. posted a $49.2 billion budget surplus for January

U.S. posted a $49.2 billion budget surplus for January, less than expected and below the $51.3 billion surplus a year ago, and the $55.2 billion in 2016. Receipts were up 4.9% year over year versus the 9.7% year over year previously. Outlays rose to a 6.5% year over year clip vesus 13.3% year over year. The fiscal deficit now stands at -$175.7 billion versus -$158.6 billion (revised from -$156.9 billion).

White House economic assumptions were revealed as part of the budget release, including 3% GDP growth in 2018, 3.2% in 2019 and 3.1% in 2020. Inflation in the form of CPI is seen at 2.1% in 2018, 2.0% in 2019 and 2.2% in 2020. The administration sees the unemployment rate average at 3.9% in 2018, 3.7% in 2019 and 3.8% in 2020. Rising yields and higher deficits embedded in these forecasts should not come as a surprise, though they underscore the bond market’s recent concerns.

U.S. chain store sales bounced

U.S. chain store sales bounced 1.8% to 116.5 in the week ended February 10, correcting from the 1.9% drop in the prior week, according to The Retail Economist report. Consumer staples paced the strength, led by traditional grocery store sales, along with dollar stores and drug stores. However, the 12-month pace slowed to 1.6% year over year, versus 2.7% year over year previously, which is the softest rate since late November 2016.

The Fed’s Mester said further rate hikes “will be appropriate this year,” in her comments on “Views on the Economy and Monetary Policy.” She also supports the balance sheet normalization plan. The recent market turbulence has not changed her outlook on the economy, where she sees the fundamentals as “very sound.” Trading has been fairly orderly, she added. Tax reform should add to growth and upside risks. Inflation is expected to gradually rise to 2% over the next year or two. Mester is one of the more hawkish on the FOMC, and is a voter this year.

UK January CPI unexpectedly remained at 3.0% year over year

UK January CPI unexpectedly remained at 3.0% year over year, the same as in December contrary to the median forecast for a dip to 2.9% year over year. Core CPI also lifted to 2.7% year over year from 2.5%, above the expected 2.6% year over year rate. The outcome still fits BoE projections, which ultimately expects CPI to decline to 2.2% year over year by Q1 2020. PPI data showed input prices gaining 4.7% year over year, down form 5.4% year over year in the month prior, and output prices rising 2.8% year over year, down from 3.3% in December. The above-forecast headline sparked a rally in sterling, which gained about 40 pips versus the dollar in the wake of the data release. The data follows the BoE’s hawkish guidance shift last week, which said monetary policy may have to be tightened sooner and by more than envisaged previously as a consequence of rising demand and lackluster productivity.