EUR/USD Daily Technical Analysis for March 23, 2018

 

The EUR/USD gave back some of its gains moving lower as the ECB repeated the need for ongoing monetary accommodation. Eurozone PMI numbers were softer than expected hitting a fresh 14-month low which took some of the air out of the currency pair. French business confidence fell back, and the German IFO fell back capping the upside in the EUR/USD.

Technicals

The EUR/USD moved lower after testing resistance near a downward sloping trend line that comes in near 1.2365.  Support on the current pair is seen near an upward sloping trend line that comes in near 1.225.  Momentum is negative to neutral as the MACD (moving average convergence divergence) index prints in the red, but the trajectory of the MACD histogram is flat reflecting consolidation.  The fast stochastic generated a crossover sell signal, but it was in the middle of the neutral range so the signal is somewhat mitigated.

ECB repeats need for ongoing monetary accommodation

As expected and usual, the ECB’s economic bulletin pretty much matched Draghi’s press conference from the last meeting, with the report repeating that data “confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to 2%. The ECB’s guidance was a tad more hawkish last month, but the dovish twist and the lack of urgency to commit to an end date for QE is keeping markets happy.

The Eurozone current account surplus widened

The Eurozone current account surplus widened to EUR 37.6 billion in January from EUR 31.0 billion in the previous month, despite a dip in the goods surplus to EUR 27.1 billion from EUR 31.1 billion in December. The latter was compensated by stronger surpluses in both the services and the primary income balance, while the deficit in the secondary income balance declined at the start of the year. Despite this the widening of the current account surplus is likely to add to pressure on the Eurozone and in particular Germany to reduce the surplus. The unadjusted financial account meanwhile showed direct and portfolio investment inflows of EUR 41.8 billion in January, but the accumulated inflows in the 12 months to January amounted to just EUR 422.5 billion markedly less than the EUR 605.4 billion in the 12 months to January last year.

Eurozone Composite PMI at 14-months low in March

The services reading fell back to 55.0 from 56.2, the manufacturing to 56.6 from 58.6, leaving the composite output index at 55.3, down from 57.1 in February and signaling the weakest rate of expansion since the start of 2017. New orders inflow slowed down in both manufacturing and services sectors, but firms “commonly reported the need to boost staffing levels to raise capacity in line with current and future expected demand” and the Markit still reported that despite the rise in employment “the survey data also brought further evidence of business growth being hindered by capacity constraints”, with the backlogs of work rising to a greater extent than February, while manufacturing vendor delivery times again lengthened to one of the largest extents over the past 18 years, “reflecting widespread supply chain delays amid strong demand for inputs”. Coupled with sharply rising input costs, this saw a marked rise in average selling prices.

German IFO Fell Back

German Ifo index falls back to 114.7 in March from 115.4 in the previous month. The breakdown showed the current conditions indicator falling to 126.4 from 125.9 while the expectations index eased to 104.4 from 105.4. The sector breakdown indicated that that in manufacturing business confidence deteriorated, as future expectations declined markedly. Demand remains strong and companies still intent to increase production. Construction confidence improved, but sentiment in wholesaling and retailing also declined. An overall somewhat weaker survey round then, but in Germany in particular the output gap has pretty much evaporated and even a slowdown in the pace of expansion will still leave the need for a less expansionary policy going ahead.

French business confidence dipped in March

French business confidence dipped in March, with the overall reading falling to 109 from 110 in the previous month, while the manufacturing reading dropped to 111 from 112 and the own company production outlook indicator declined to 11 from 15. Services confidence remained steady Construction confidence improved, but overall the numbers fit the recent picture and tie in with expectations for dips in PMI.