EUR/USD Daily Technical Analysis for January 11, 2017

The EUR/USD whipsawed initially moving higher as European yields surged, but a decline in French Industrial production and a solid U.S. Mortgage market index capped the exchange rate from moving higher.

Technical

The EUR/USD pushed higher but ran into resistance near the 10-day moving average at 1.1996. Support on the currency pair is seen near the December low at 1.1710.  Momentum on the currency pair has turned negative as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

French IP Declined

French industrial production declined -0.5% month over month in line with consensus forecasts and bringing the annual rate down to 2.5% year over year from the somewhat exaggerated 5.5% year over year in October. Patterns over the October/November period contrasted sharply in Germany and France, but overall the manufacturing sector remains healthy judging by orders and survey data with the latter pointing to ongoing strong orders inflow and job creation as companies run into capacity constraints.

Fed’s discount rate meeting minutes reflected the hawkish policy stance

Fed’s discount rate meeting minutes reflected the hawkish policy stance evidenced in the rate hike at the December 12, 13 meeting. According to the report, eight of the District Banks, including Cleveland, SF, Boston, NY, Philadelphia, Richmond, Atlanta, and KC voted in late November for an increase in the Discount rate at the December 4 meeting. Four of the Banks, Dallas, Chicago, St Louis, and Minneapolis also voted in late November for no change. Bank Directors noted continued economic growth and positive conditions in various sectors. Those arguing for an unchanged stance were concerned over the continued softness in inflation. For the December 13 FOMC meeting, nine of the Banks called for a hike, with Dallas defecting in their December 7 vote.

Swedish Riksbank inching towards policy normalization

Swedish Riksbank inching towards policy normalization, while watching krona and ECB. The minutes from the December 19 showed that Board members stressed that the development of the exchange rate is particularly important, and the discussion showed that members a split on the timing for a change in policy. Governor Ingves may have said that the time for a change in policy hasn’t arrived yet, but also noted that it is getting closer.

The U.S. trade price report undershot estimates

The U.S. trade price report undershot estimates with fairly flat export and import prices beyond a 2.0% climb for petroleum imports and a 0.4% drop for agricultural exports U.S. import prices rose 0.1% in December, though export prices dipped 0.1%. The 0.7% November increase in import prices was revised slightly higher to 0.8% while the prior 0.1% October gain was nudged to 0.2%. The 0.5% export price gain was not revised. On a 12-month basis, import prices slowed to 3.0% year over year versus 3.3% year over year which was revised from 3.1% year over year, and export prices slipped to 2.6% year over year compared to 3.1% year over year. For imports, petroleum prices were up 2.0% after surging 8.1% previously which was revised from 7.2%. Excluding petroleum, prices were down 0.2% versus the prior 0.2% gain. As for exports, agricultural prices fell 0.4% following the 0.8% drop in November. Excluding ag, export prices were unchanged following the 0.6% gain.

U.S. MBA mortgage market index surged

U.S. MBA mortgage market index surged 8.3% in data released earlier, while the purchase index rose 5.0% and the refinancing index jumped 11.4% for the January 5th week. This was accompanied by a 1 basis point rise in the average 30-year fixed mortgage rate to 4.23% following the FOMC minutes and subpar headline December payrolls reading. Data has been coming in relatively firm in addition to momentum in the asset markets from the tax cuts and the Fed continues to eye 3-hikes in 2018.