EUR/USD Daily Technical Analysis for January 4, 2018

 

The EUR/USD edged lower unable to continue to trend higher after hitting resistance levels on Tuesday.  While the German jobless rate hit a record low, a stronger than expected ISM Manufacturing Survey helped buoy the greenback. Spanish jobless levels where also better than expected which likely means that the combination better German and Spanish numbers will spill over into the Eurozone.

Technicals

The EUR/USD was unable to make a higher high after hitting resistance near the September highs at 1.2092.  Support on the currency pair is seen near the 10-day moving average at 1.1936.  The relative strength index (RSI) hit the 70-oversold trigger level, which was likely a reason that traders took a pause.  Momentum, as reflected by the MACD (moving average converge divergence) index, remains positive as the MACD histogram prints in the black with an upward sloping trajectory which points to a higher exchange rate.

German Jobless Rate Hit a Record Low

German jobless rate is at new record low. German jobless numbers declined -29K in December more than anticipated, leaving the unadjusted rate at a record low of 5.5%, after the November number was revised down to 5.5% from 5.6% reported initially. The German labor market is looking increasingly tight and companies are struggling to find skilled workers. So far wage growth has been relatively moderate, even though German wage increases have been above the Eurozone average, but the next wage round is likely to be very tough. Bundesbank President Weidmann already warned of the risk of an overshoot in wage growth and inflation and the tone of ECB officials is changing now as the more and more suggest that the current QE program will be the last.

UK December construction PMI underwhelmed at 52.2, declining from the November reading of 53.2. The median forecast had been for 53.1. New orders rose to a 53.1 reading, which was the highest since last May and providing a silver lining to the overall disappointing report. Market participants will be looking to tomorrow’s release of the services PMI following headline misses in both the manufacturing and construction PMI surveys.

Spanish jobless numbers much better than expected

Spanish jobless numbers dropped -61.5K in December, the first dip since July and a 1.8% decline, leaving the overall number down -7.8% from December last year. The rate of annual improvements has been abating and the Catalonia troubles continue to hang over the Spanish economy, but still, the data are encouraging and also a reflection of past labor market reforms.

Switzerland’s December manufacturing PMI beat expectations

Switzerland’s December manufacturing PMI beat expectations in rising to a solid 65.2 headline reading, which indicates a strong rate of expansion in the sector. The median forecast had been for a 64.6 outcome, after 65.1 in the previous month. The near 10% decline in the franc versus the euro over the latter half of last year has been a tonic for the export oriented Swiss economy. The report showed rising employment and purchase prices.

ECB’s Nowotny suggests end of QE is in sight

The Austrian central bank head told Germany’s Sueddeutsche Zeitung that developments on U.S. stock markets is “dangerous” as prices were overheating, which meant that more funds are flowing into Europe’s markets and that one needs to be careful that a price bubble doesn’t also develop in Europe. The banking supervisor must restrict lending on stock purchases in time. Nowotny also suggested that the end of the ECB’s asset purchase program is in sight, adding that the central bank will continue to re-invest the stock of purchases that becomes due and that it will take some years before the stock of purchases will start to shrink, even after net purchases have been halted.

U.S, MBA Mortgage Market Index Rose

U.S. MBA mortgage market index rose 0.7% in data released earlier, accompanied by a 0.1% dip in the purchase index and a 1.4% gain in the refinancing index for the week ended December 19. In addition, the average 30-year fixed mortgage rate was unchanged at 4.25%.

U.S. Chain Store Sales Dropped

U.S. chain store sales dropped 2.3% in the week ended December 30, following the 0.4% slip in the prior week. Though the final sales push to Christmas was contained in this report, the big Artic freeze which impacted the eastern two-thirds of the U.S. limited post-Christmas shopping, gift card redemptions, and merchandise exchanges. And compared to the same week last year, however, sales posted a 3.9% year over year pace from 3.3% year over year.