EUR/USD Daily Technical Analysis for March 15, 2018

The EUR/USD edged lower but remains buoyed despite softer than expected Eurozone Industrial Production.  Inflation in Germany was confirmed at lower levels but were up month over month. The ECB’s Coeure said that inflation not yet where we want it, which is keeping a lit on the EUR/USD currency pair.

Technicals

The EUR/USD moved higher early testing resistance near a downward sloping trend line that comes in near 1.2425.  Support is seen near the 10-day moving average at 1.2346. Additional support is seen near an upward sloping trend line that comes in near 1.2230. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints near the zero index level with a flat trajectory which reflects consolidation. The fast stochastic has generated a crossover sell signal, which points to a lower exchange rate.

Eurozone industrial production dropped

Eurozone industrial production dropped -1.0% month over month, more than anticipated, but mainly driven by a -6.6% month over month decline in energy production. The annual rate fell back to a still healthy 2.7% year over year from 5.3% year over year in December, with energy production down -10.4% year over year. The three-month trend rate still stood at 1.1% and with spare capacity eroding faster than previously expected, it is clear that annual growth rates cannot be sustained at these levels for an extended period of time.

German February HICP inflation was confirmed as expected

German February HICP inflation was confirmed at 1.2% year over year as expected, with prices up 0.4% month over month. The breakdown confirmed that the dip from 1.4% year over year in January was mainly due to lower energy and food price inflation. Household energy rose 0.6% year over year, after 1.5% year over year in the previous month and food price inflation fell back to 1.1% year over year from 3.1% year over year.

ECB’s Coeure Says Inflation not yet where we want it

ECB’s Coeure Says Inflation not yet where we want it. The Executive Board member said “the expansion is very strong” – in fact “probably the strongest we have seen in 20 years in terms of the level of growth and in terms of the breadth and consistency of growth”. However, he added that this is “very much a cyclical expansion” and that it is “not clear yet that the long-term growth rates are conming back”. At the same time, he added that “inflation is not yet where we want it to be”.

ECB’s Praet Says Mission Not Accomplished on Inflation

ECB cannot declare “mission accomplished” on the inflation front, according to Praet, although he added that the central bank has made “substantial progress on the path towards a sustained adjustment in inflation”. He added that the central bank’s forward guidance on policy rates “will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment” towards the target as the current formally that rates will be on hold until “well past the end of net asset purchases” will “gradually cease to provide sufficient guidance about the likely evolution of the monetary policy stance”. Praet didn’t spell it out, but with the ECB on course to phase out net asset purchases this year, there will indeed have to be a clearer guidance on rates once the central bank commits to an end date for net asset purchases.

The ECB’s Draghi said that policy adjustments have to be measures and predictable. The central bank president said that adjustments will “proceed at a measures pace that is most appropriate for inflation convergence to consolidate, taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack”. He added that the ECB currently sees “inflation converging towards our aim over the medium term, and we are more confident than in the past that this convergence will come to pass”. At the same time, Draghi stressed that the central bank will “need to see further evidence that inflation dynamics are moving in the right direction” and that the condition to bring net asset purchases to an end is a “sustained adjustment in the path of inflation towards” the central bank’s inflation aim. “Developments in foreign exchange markets and wider financial markets” as well as risks from the global environment “and in particular the possible spillovers of the new trade measures announced by the U.S. administration” are the main risk factors.