EUR/USD Daily Technical Analysis for March 7, 2018

The EUR/USD shot higher for the 4^th consecutive trading session, as European yields increased at a fast rate their U.S. counterparts. European retail PMI broke a losing streak notching up gains in February. Swiss February CPI came out in line with expectations as U.S. chain store sales declined. The technical picture is positive, and the exchange rate is poised to test upside resistance.

Technicals

The EUR/USD continued to climb on Tuesday, rising 80 pips and poised to test target resistance near the February high at 1.2555. Support on the currency pair is seen near the 10-day moving average at 1.2296.  Additional support is seen near the February lows at 1.2154. Momentum is turning positive as the MACD (moving average convergence divergence) index is poised to generate a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The fast stochastic continued to climb reflecting accelerating positive momentum. The fast stochastic hit the 95 level in its past 2-attempts at the EUR/USD breaking out, which means it can attain a higher overbought reading.

Eurozone retail PMI breaks losing streak

Eurozone retail PMI breaks losing streak. The stream of negative February survey readings for the Eurozone was broken by a marked improvement in the retail PMI, which jumped to 52.3 in February from 50.8 in the previous month. The Italian reading in particular recovered and at 50.4 is back in expansion territory, after a reading of just 47.3 in January. Its not all looking gloomy for the Eurozone then, especially as overall reading all remain at high levels and Markit reports ongoing job creation.

Swiss February CPI came in as expected

Swiss February CPI came in at 0.6% year over year, as expected, and down from the 0.8% year over year rate recorded in January. The data, along with the recent stability in the currency, should maintain the SNB’s motivation to maintain ultra-easing monetary settings.

Swedish Monetary policy needs to proceed cautiously

Riksbank’s Ingves said that monetary policy needs to proceed cautiously, warning that while economic activity in Sweden and abroad is “increasingly strong and inflation is close to target”, “recent statistics indicate that price and wage pressures in Sweden have weakened and that inflation is expected to be somewhat lower in the coming year”. The Riksbank Governor stressed that while inflation is expected to be close to 2% from 2019, “this is based on continued support from monetary policy”, with uncertainty over inflation suggesting that “monetary policy needs to proceed with caution”. Pretty much what the ECB is saying as well.

U.S. chain store sales declined

U.S. chain store sales declined 0.8% to 114.8 in the March 3 week, after sliding 0.1% in the prior week, and -0.6% in the February 17 week. Compared to the same week last year, sales slowed to 1.9% year over year from 2.3% year over year in the prior week. The report said sales momentum is moderating after advancing in the two prior fiscal quarters. Meanwhile, dollar stores remain the strongest segment in retail.

Dallas Fed’s Kaplan still projects 3 rates hikes in 2018

Dallas Fed’s Kaplan still projects 3 rates hikes this year. His base case hasn’t changed, and he wants to be tightening rates sooner rather than later, as it gives the Fed the best chance of prolonging the recovery. He’ll see later in the year if his forecast needs to change. He’s most sensitive to the unemployment rate, and believes it should drop below 4% this year as we’re either at or beyond full employment. He acknowledged the recent tax package caused an upgrade in outlooks on the economy, but elements of the bill and the new budget suggest an increased debt load which could eventually turn into an economic headwind. Part of the increase in yields likely is due to expectations on increased growth, along with increased Treasury supply. On the tariff and trade talks, he’s taking a wait and see approach, though he noted that our trade relationships with Mexico and Canada are critical.