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The EUR/USD Edges Lower on Weak Inflation Data

By:
David Becker
Published: Apr 30, 2018, 16:59 UTC

The EUR/USD moved lower on Monday as the greenback continued to produce gains, as weaker European inflation and softer than expected retail sales, weighed

GBP/USD weekly chart, April 30, 2018

The EUR/USD moved lower on Monday as the greenback continued to produce gains, as weaker European inflation and softer than expected retail sales, weighed on the currency pair.  German, Italian and Eurozone inflation were all weaker than expected.

Technicals

The EUR/USD moved lower on Monday, hovering near the unchanged levels. The exchange rate made a higher high and a higher low but continued to consolidate below resistance near the 10-day moving average at 1.2231.  Support is seen near the 200-day moving average at 1.2010. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to a lower exchange rate. The exchange rate is oversold with the fast stochastic printing a reading of 14, below the oversold trigger level of 20 which could foreshadow a correction.

German Retail Sales Contracted

German retail sales contracted -0.6% month over month on a seasonally adjusted basis, but the annual rate held steady at 1.3% year over year, despite the fact that March this year had a shopping day less than March 2017. Non-food sales, however, contracted sharply over the year, which may have to do with the earlier timing of Easter, which shifted the focus from spending on household durables, to holiday and food spending. The March number meant sales contracted a whopping -0.9% quarter over quarter in Q1, after still rising 0.7% quarter over quarter in Q4 last year. More signs then that Q1 GDP growth will be much weaker than Q4 last year. The Bundesbank already highlighted that risk but also argued special factors and played down the importance for the longer term outlook.

Italian April HICP inflation weaker than expected

Italian April HICP inflation weaker than expected, with the headline rate falling back to 0.6% year over year from 0.9% year over year in March. The correction in the headline rate confirms that much of the uptick in March was due to the earlier timing of Easter, which lifted holiday related prices. In Italy, hotels, cafes and restaurants reported a pick up in prices of 1.0% year over year in April, following the uptick to 1.5% year over year in the previous month. So as elsewhere in the Eurozone the variations over the February/March/April period were largely due to base effects. And as the Italian headline rate is impacted by negative base effects from changes to prices for education, which have been down around 16% year over year every month from January, the low headline rate has to be viewed with caution. Still, together with weaker than anticipated data from Portugal and Spain, the numbers suggest the risk of a downside surprise for the Eurozone numbers, even if French and German HICP seems to have held steady to higher in April.

Italian April HICP inflation weaker than expected

German April state inflation data stable compared to March. Preliminary April inflation data from 6 German states showed annual rates that overall held steady compared to March, leaving the preliminary HICP (due this afternoon) on course to come in at 1.5% year over year, unchanged from the previous month. Bloomberg consensus for the national CPI rate meanwhile suggest a slight deceleration in the headline rate, which could be overshot judging by the state numbers. Overall German inflation remains above the Eurozone average and with wage growth picking up is on course to nudge up to the 2% target, although for now remains below the ECB’s definition of price stability.

 

Eurozone M3 money supply growth weaker than expected

Eurozone M3 money supply growth weaker than expected in March, with the annual rate falling back to 3.7% from 4.2%. The counterparts showed loans to households rising 3.0% year over year from 2.9% Year over year, and the growth rate of loans to non-financial corporations accelerating to 2.2% year over year from 2.0% year over year.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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