EUR/USD Daily Technical Analysis for March 29, 2018

The dollar gained traction against the Euro on Wednesday, declining for a second straight trading session, and falling through short-term support. German consumer confidence unexpectedly improved but that was easily offset by an upwardly revised U.S. GDP report. U.S. yield moved lower but were outpaced by the decline in the yields of their European counterparts.

Technicals

The EUR/USD declined on Wednesday, breaking through support at the 10-day moving average which is now seen as resistance at 1.2336.  Support is now seen near an upward sloping trend line that comes in near 1.2280.  Momentum has turned negative as the fast stochastic generated a crossover sell signal. The MACD (moving average convergence divergence) index also generated a crossover sell signal and the MACD histogram is printing in the red with a downward sloping trajectory which points to a lower exchange rate.

German companies more cautious on hiring

The Ifo employment indicator fell to 112.4 in March from 113.5 in the previous month. This is still a very high level, but the Ifo institute highlighted that while companies are still hiring they have adopted a more cautious approach than in recent months, with the sharpest drop seen in distribution. The service sector remains the strongest driver and construction companies also remain keen to hire, according to the Ifo report. So first signs that the dip in sentiment is affecting the drive to expand despite PMI reports of ongoing capacity constraints.

German GfK consumer confidence unexpectedly

German GfK consumer confidence unexpectedly improved to 10.9 in the projected reading for April from 10.8 in March. The full breakdown is only available for March and showed a slight pick up in overall business expectations, as well as income expectations and the willingness to buy. The willingness to save meanwhile turned more negative. Good signals for consumption trends then, especially as the labor market is looking quite tight. And with companies struggling to keep up with demand, the numbers will add to the arguments for less monetary support and a phasing out of net asset purchases this year.

Swiss KOF institute lifts growth forecast

Swiss KOF institute lifts growth forecast to 2.5% this year, followed by 1.8% next year, from 2.3% and 1.7% predicted previously. The institute said economic developments are very positive, with strong growth in both domestic and export oriented sectors amid improved economic conditions in Switzerland’s main trading partners. The weakening of the CHF against the EUR is also underpinning growth according to the report, which highlighted that the weaker currency helped exporters to increase profit markets, although it also points out that part of the improved situation is due to licensing fees from sporting events, which are not a reflection of the overall economic situation.

The BoE’s survey reported that manufacturers are intending to step up investment

The BoE’s survey reported that manufacturers are intending to step up investment as factories operate near full capacity. Companies are also finding it harder and harder to hire the right people and the tight labour market is holding back growth. So far the impact on pay has been limited, although the BoE noted that settlements are running a bit higher this year than in 2017, at between 2.5-3.5%. A pick up in investment would help to lift underlying growth potential, but the tightening of labor market conditions and higher pay settlements will add to the arguments of the hawks ahead of the May BoE decision.

U.S. GDP was revised up

U.S. GDP was revised up to a 2.9% growth rate in Q4, a little better than expected, versus the 2.5% pace in the prior reading, and 2.6% in the Advance report. Growth was up 3.2% in Q3 and 3.1% in Q2 last year. Personal consumption was bumped to 4.0% versus 3.8% previously. Fixed investment was also nudged higher to an 8.2% higher versus the prior 8.1% reading, with spending on residential projects up 12.8% from 13.0% previously, and nonresidential up 6.8% from 6.6%. Government spending rose at a 3.0% clip versus 2.9%, though Federal spending was flat at a 3.2% rate. Inventories subtracted $22.9 billion versus the prior -$30.5 billion. Net trade knocked off $56.4 billion compared to -$54.7 billion previously. The chain price index was steady at 2.3%, with the core rate unchanged at 1.9%.

U.S. MBA mortgage market index rose 4.8%, accompanied by a 3.1% increase in the purchase index and a 7.3% bounce in the refinancing index. The average 30-year mortgage rate rose 1 basis point to 4.69%, remaining relatively firm near multi-year highs after the FOMC hiked the target band a quarter point to 1.50-1.75%, raised its projections, but left its dots relatively steady near-term and maintained gradualism.