EUR/USD Daily Technical Analysis for February 2, 2018

The EUR/USD moved higher on Thursday and is poised to break out above resistance.  European yields surged higher outpacing their European counterparts.  Eurozone manufacturing was confirmed at 59.6 a shade lower than the 60.6 level hit in December.  This was countered by a strong jobless claims report and a robust challenger report that showed how strong the U.S. job market is.

Technicals

The EUR/USD pushed higher and is poised to test target resistance near 1.2537. Support on the currency pair is seen near the 10-day moving average at 1.2367.  Momentum is positive as the RSI (relative strength index) which is a momentum oscillator broke out to fresh highs, which will likely drag the currency pair higher. The only issue is that the current reading of 74, is above the overbought trigger level of 70 and could foreshadow a correction. The MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate.

Eurozone PMI Confirmed

Eurozone manufacturing PMI confirmed at 59.6. The final Eurozone number of 59.6 is down from 60.6 in December, but Markit reported a strong start to 2018 adding that while rates of growth in output and new orders eased slightly from near record highs in December they remained among the best seen since the survey began in 1997 and signaled solid growth across the consumer, intermediate and investment goods categories. At the same time, Markit reported a pick up in inflationary pressures at the start of 2018 with “both output charges and input prices rising at faster rates”.

The ECB’s Praet says thereis stilll some distance away from meeting inflation criteria

ECB’s Praet once again tried to push back against tightening fears, saying that the ECB’s policy will evolve in a “data-dependent” manner and that we are “still some distance away from meeting the Governing Council’s criteria for a sustained adjustment in the path of inflation”. After Coeure’s comments on the possible impact of a strong EUR on policy decisions, the data ties in with what looks like a concerted effort to keep the single currency under control.

ECB’s Coeure hints stronger EUR could impact policy

The Executive Board member, who previously said that given the strength of the economy the current QE program could be the last said in an interview published on the ECB website yesterday that the recent kind of volatility in forex markets were to continue and “lead to an unwarranted tightening of our monetary policy, we would have to reassess and consider”, which implies that the ECB could still change its mind on the phasing out of asset purchases. A clear sign then that the focus even among the more hawkish leaning council members has switched from trying to push through a less dovish stance at the top of the ECB towards damage limitation on forex markets, which ironically also suggests that consensus for a gradual phasing out of QE in the fourth quarter is building.

U.S. Jobless Claims Unexpectedly Dropped

U.S. initial jobless claims slid 1k to 230k in the January 27 week following the 15k rise to 231k previously. The 4-week moving average fell to 234.5k from 239.5k. Continuing claims increased 13k to 1,953k in the January 20 week after dropping 25k to 1,940k in the January 13 week. Claims have been subject to numerous distortions in recent months, including holidays, weather, and disasters, but those should be dissipating.

U.S. Challenger reported announced layoffs climbed 12.2k in January to 44.7k, after falling 2.6k in December to 32.4k. The data are not seasonally adjusted and largely reflect the unwind of holiday hiring. Indeed, retail lead all sectors with nearly 15.4k in job cuts. The annual pace of planned job cuts posted a 2.8% year over year decline, a slightly slower pace of contraction versus December’s -3.6% year over year. Meanwhile, hirings increased 33.7k to 41.9k after falling 53.1k in December to 8.2k.

UK January Manufacturing PMI Came in Worse than Expected

UK’s January manufacturing PMI disappointed, unexpectedly declining in the headline reading to 55.3, the lowest since last June and down from 56.2 in December, which was itself revised slightly lower, from 56.3. The median forecast had been for an uptick to 56.5. The decline in January marks the second consecutive month of abatement in the pace of expansion in the sector after the PMI headline hit a 51-month high of 58.2, though at 55.3 still remains comfortably above the long-term average of 51.7. New order intakes fell to the slowest in seven months, which drove the headline lower, offsetting a near four-year high in export orders, with increased sales reported to clients in North America, China, mainland Europe, the Middle East and Japan.