EUR/USD Daily Technical Analysis for January 12, 2018

Weak U.S. Inflation Weighs on the Greenback
David Becker
eur/usd

The EUR/USD moved higher on Thursday following a stronger than expected Eurozone Industrial Production report, and a weaker than expected U.S. PPI report.  German growth also accelerated more than expected and the soft inflation number in the U.S. will likely cap U.S. yields capping any rise in the dollar.

Technicals

The EUR/USD rose above 1.20, pushing through resistance which is now seen as support near the 10-day moving average at 1.2005. Additional support on the exchange rate is seen near an upward sloping trend line that comes in near 1.1865.  Resistance is seen near the January highs at 1.2090.  Momentum on the other hand has turned negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. The MACD histogram is printing in the red but the trajectory has turned higher which points to consolidation. The RSU moved higher with price action reflecting accelerating positive momentum. The current reading of 60 is in the upper end of the neutral range.

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Eurozone IP Accelerated Higher

Eurozone industrial production growth accelerated in November, with the 1.0% month over month growth rate topping consensus and leaving the annual rate at 3.2% year over year, down from 3.9% year over year in the previous month, but still suggesting ongoing strong growth. The manufacturing sector in particular has been outperforming and producers remains sufficiently optimistic about the outlook to expand staff levels, according to PMIs, while  German GDP numbers showed strong investment growth in 2017. A still very robust recovery then that is also evident in marked improvements in jobless numbers across the Eurozone, which in turn should help to lift wage growth this year and see the ECB phasing out net asset purchases in Q4 this year.

German 2017 growth accelerated to highest rate since 2011

German growth reached 2.2% year over year in real terms, slightly less than the consensus estimate, but adjusted for calendar factors growth was a whopping 2.5% year over year as expected, after 1.9% year over year for both readings in 2017. Once again growth was primarily underpinned by domestic demand, with private consumption up 2.0%, and investments rising 3.0%, as machinery investment jumped 3.5%. Net exports contributed 0.2% points to the unadjusted annual rate, gross fixed capital investment 0.6% points and private consumption 1.1% points. So not the typical export led recovery, although after a negative contribution of -0.3% points last year, the external sector is also picking up amid strong global growth. Looking ahead orders suggest ongoing growth momentum and wages are also expected to pick up as the labor market is looking increasingly tight and the ECB’s policy is looking too expansionary for Germany.

U.S. Wholesale Prices Slid

U.S. December PPI slid 0.1% on both the headline and core, with the latter softer than expected. There were no revisions to November’s 0.4%, 0.3% respective gains. The 12-month pace slowed to 2.6% year over year for the headline, versus 3.1% previously, with the core at 2.3% year over year compared to the prior 2.4% year over year. Goods prices were unchanged following the 1.0% surge in November. Energy prices were flat too, versus 4.6% previously. Food prices dropped 0.7% after the 0.3% gain. Services costs dipped 0.2% versus 0.2%.

Jobless Claims Rose More than Expected

The 11k U.S. initial claims rise to 261k in the week of New Year’s extended the 3k rise to 250k in the week of Christmas to leave a four-week stretch of elevated levels, following a prior four-week string of declines to a super-lean 225k in early-December from 252k in the week of Veteran’s Day. The gyrations to holiday volatility that should extend through the MLK weekend, though the lofty start to January is surprising. Claims should tighten in Q1 with disaster rebuilding and a boost from tax reform. Claims entered January well above the 242k December average that matched the 242k November level, exceeded the super-lean 233k in October, but undershot the hurricane-lifted 269k average in September. Next week’s BLS survey week reading should fall back toward recent survey week readings of 245k in December, 240k in November and 223k in October, versus a hurricane-lifted 260k BLS survey week reading in September. Our 200k January nonfarm payroll estimate tracks the 204k average post-hurricane rise in Q4 and the 200k average payroll gain we expect for 2018 overall, though it beats the oddly weak 148k rise in December and the 171k average gain in 2017.

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