EUR/USD Price Analysis for February 16, 2018

The EUR/USD is testing the January highs at inflation worries appears to be priced in to the US dllar. The Eurozone trade surplus narrowed in 2017, while Spanish inflation was unchanged in December.  French employment dropped sharply and core PPI was hotter than expected.

Technicals

The EUR/USD is poised to test resistance near the January highs at 1.2537.  A break of this level would lead to a test of the October 2014 highs at 1.2887.  Support on the currency pair is seen near the  10-day moving average at 1.2360.  Momentum is poised to turn positive as the MACD (moving average convergence divergence) index is close to generating a crossover buy signal.  The MACD histogram is also about to crossover the center line. The fast stochastic is continuing to climb reflecting accelerating positive momentum, but the current reading of 92 is above the overbought trigger level of 80 which could foreshadow a correction.

Eurozone trade surplus narrowed in 2017

The Eurozone trade surplus widened to EUR 23.8 billion in December from EUR 22.0 billion in the previous month. Unadjusted data showed a December surplus of EUR 25.4 billion, with exports up 1.0% year over year, imports 2.5% year over year. For the full year 2017 the trade surplus amounted to EUR 238.1 billion, down from EUR 265.2 billion in 2016, as import growth reached 9.7%, far outstripping export growth of 7.1% year over year. This is nominal data of course, impacted by developments in energy prices and the exchange rate and indeed detailed data for the EU as a whole showed a marked widening of the deficit in the energy balance last year.

Spanish HICP inflation was Unchanged

Spanish HICP inflation was confirmed at just 0.7% year over year, unchanged from the preliminary reading and down from 1.2% year over year in December. Food price inflation decelerated, and the official index for housing costs declined -2.0% year over year, after rising 1.3% year over year in December. Core CPI held steady at 0.8% year over year, lower than the highs seen in the middle of last year, but a tad above the HICP rate. Still, these are low numbers that will back the arguments of the doves at the ECB who remain reluctant to commit to an end date for net asset purchases just yet.

French unemployment sharply lower in Q4

French unemployment sharply lower in Q4. The French ILO unemployment rate dropped to 8.9% in Q4 last year, from 9.6% in the previous quarter. A much more pronounced improvement than anticipated and with mainland jobless numbers falling -205K in the fourth quarter, compared to a rise of 66K in the third quarter. The mainland unemployment rate fell back to 8.6% from 9.3%. Strong numbers that highlight the improvement in labor markets across the Eurozone, which should ultimately also drive up wage growth, although cross-country differences remain high and high youth unemployment remains a problem.

U.S. PPI rose in January

U.S. PPI rose 0.4% in January on both the headline and the core, a little hotter than expected, after an unchanged headline reading in December (revised from -0.1%) and a -0.1% ex-food and energy print. On a 12-month basis, PPI accelerated to 2.7% year over year versus 2.6% year over year, while the core slowed to 2.2% year over year versus 2.3% year over year. Goods prices rose 0.7%, as the 3.4% increase in energy more than offset the 0.2% dip in food prices. Services prices increased 0.3%.

Jobless Claims Bounced

The 7k U.S. initial claims bounce to a still-lean 230k reversed the 7k drop to a super-tight 223k which was 221k in the first week of February to leave oscillations just above the 45-year low of 216k in the January BLS survey week. Holiday distortions are behind us, and claims have established a tight Q1 trajectory with disaster rebuilding, and expected boosts from tax reform and the budget bill. Claims are averaging just 228k thus far in February, following a cycle-low average in January 232k, versus prior averages of 242k in both November and December and 233k in October. Next week’s February BLS survey week reading will likely exceed January’s 216k, versus prior readings of 245k in December, 240k in November and 223k in October. We expect a 200k February nonfarm payroll rise that repeats the 200k figure from January. Payrolls face upside risk from a tight path for claims and a firm trajectory for ADP through the 234k January rise, alongside robust consumer, producer, and small business confidence.