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EUR/USD Daily Technical Analysis for February 22, 2018

By:
David Becker
Published: Feb 22, 2018, 05:30 UTC

The EUR/USD moved lower on Wednesday following a hawkish Fed minutes that lifted U.S. yields pushing the yield differential in favor of the greenback. 

Fed Minutes

The EUR/USD moved lower on Wednesday following a hawkish Fed minutes that lifted U.S. yields pushing the yield differential in favor of the greenback.  This came as Eurozone PMI corrected sharply which weighed on the currency pair.

Technicals

The EUR/USD moved through support levels, breaking through both the 10-day moving average at 1.2356, and an upward sloping trend line that comes in near 1.2290.  Both are now seen as resistance while target support is seen near the February lows at 1.22. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints near the zero index level with a downward sloping trajectory which points to a lower exchange rate.  The fast stochastic also moved lower and is now printing a reading of 20, which is the oversold trigger level and could foreshadow a correction.

Eurozone PMIs Dropped

Eurozone PMIs correct sharply from 12 year high. The composite output index declined to 57.5 from 58.8 in January, as the services reading dipped to 56.7 from 58.0 and the manufacturing reading corrected to 58.5 from 59.6. The manufacturing output index fell to a 4 months low of 59.5 from 61.1 in the previous month. The growth of output and new orders slowed but both sectors “continued to enjoy the best periods of expansion seen for seven years” and growth of new business was sufficiently strong to encourage companies to boost staffing levels to one of the greatest extents seen over the past 17 years. At the same time price pressures remained elevated, partly because stronger demand enabled more firms to raise their selling prices according to the report.

German composite PMI at 3 year low of 57.4, down from 59.0 in January, as the services reading fell back to 55.3, the manufacturing PMI to a six months low and the manufacturing output index to a 4 months low.

The French Februarty PMIs much lower than expected. The manufacturing reading dropped back to 56.1 from 58.4, a four months, low, while the manufacturing output index fell to a 6-months low of 57.1 and the services index to a 4-months low of 57.9. Data still points to elevated levels of private sector growth, but the dip to the lowest reading since October last year will add to the arguments of the doves, although Markit also reported a further increase in input as well as average selling prices.

FOMC minutes showed a majority saw stronger growth

FOMC minutes showed a majority saw stronger growth in the economy and agreed a gradual rate hike approach was still appropriate. Indeed, a number of policymakers raised their growth forecasts since the December meeting and saw upside risks to growth. However, officials noted “few signs of a broad-based pickup in wage growth.” And “almost all” do expect inflation to reach to the 2% goal. Several members did caution about financial market imbalances. The report supports expectations for a 25 basis point tightening in March, but of course doesn’t settle the issue of 2 or 4 rate hikes this year.

UK labor data revealed an unexpected tick higher in the jobless rate

UK labor data revealed an unexpected tick higher in the jobless rate, to 4.4% in December from the 4.3% four-decade-plus low that had persisted since last July. The median forecast had been for unchanged 4.3% rate. Average earnings data, which is a metric that the BoE, and thereby sterling markets, keeps a close watch on, rose 2.5% year over year in the three months to December in both the with- and ex-bonus figures, which matched expectations in the case of the former and exceeded expectations, by 0.1 point, in the case of the latter.

BoE’s Carney said markets are correctly discounting rate hike prospects

BoE’s Carney said markets are correctly discounting rate hike prospects, during his remarks during parliamentary testimony. Sterling markets are discounting just over a 50% probability for a 25 basis point rate hike at the May Monetary Policy Meeting. Carney repeated that the BoE does not commit to a path and refrains from giving guidance on a specific path except in the most exceptional of circumstances.

Fed’s Kashkari said “Wall Street reacts to everything.”. We don’t want to overreact to one-month data on wages and CPI, he added, as is often the Fed’s mantra, and suggests the markets were overly excited after the average hourly earnings number. He also stressed, we can’t make policy on market blips. Let’s take our time and let inflation come to us, remember he’s one of the most dovish on the FOMC, but is not a voter this year.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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