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The EUR/USD Stabilizes Following In Line European PMI and Employment Data

By:
David Becker
Published: May 2, 2018, 14:54 UTC

The EUR/USD stabilized near support levels, following Tuesday's drop.  A better than expected Eurozone PMI helped steady the ship, despite a declining EU

EUR/USD daily chart, May 01, 2018

The EUR/USD stabilized near support levels, following Tuesday’s drop.  A better than expected Eurozone PMI helped steady the ship, despite a declining EU GDP report.  Eurozone March unemployment was unchanged which was in line with expectations.

Technicals

The EUR/USD edged higher holding near the 200-day moving average which is now seen as short-term resistance. Additional resistance is seen near the 10-day moving average which is downward sloping and comes in near 1.2155. Support is seen near an upward sloping trend line that comes in near 1.1515. Momentum is 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 fast stochastic is printing a reading of 6, which his below the oversold trigger level of 80 and could foreshadow a correction.

Eurozone April manufacturing PMI was Revised up

Eurozone April manufacturing PMI was revised up to 56.2 from 56.0 reported initially. This is still down from 56.6 in March and suggest a slowdown in growth momentum at the start of the second quarter, with slower increases in new work and employment offsetting a slightly stronger gain in output.

Eurozone March unemployment steady

Eurozone March unemployment steady at 8.5%, as expected. Unemployment has come down considerably from the high of 12.1% in February 2013, but national rates continue to vary sharply, ranging from just 3.3% in Malta to 16.1% in Spain in March. Greek numbers, which are only available until January, are even higher at over 20%. Youth unemployment also remains unsustainably high at 17.3% for the Eurozone as a whole and with rates of 35% in Spain and over 40% in Greece. The labor market may be a lagging indicator, but with surveys already suggesting a slowdown in the pace of job creation, the data highlights the need for more labor market reforms to bring jobless numbers down further.

Eurozone Q1 GDP growth slowed

Eurozone Q1 GDP growth slowed to 0.4% quarter over quarter, Q4 was revised up to 0.7% quarter over quarter. This means growth was even higher at the end of last year than previously assumed, which lifts the growth trajectory and also puts the slowdown in Q1 into context. The annual growth rate fell back to a still strong 2.5% from 2.8% year over year in the last quarter of 2017. There were several adverse factors that weighed on growth in the first quarter of the year, including adverse weather conditions and an unusually high number of sick days.

UK April construction PMI beat forecasts

UK April construction PMI beat forecasts in leaping to a headline reading of 52.0, a five-month high, from the previous month’s weather-affected 47.0 reading. The median forecast had been for 50.5. A strong rebound in work on residential projections drove the rebound in the headline as activity rebounded from the snow disruptions of March, while there were also improvements in commercial and civil engineering areas. However, the report showed signs that underlying demand across the construction sector remained subdued, with total new work only rising marginally, with the survey finding anecdotal evidence of heightened uncertainty about the economy and subdued confidences among clients. Employment still rose, for a 21st consecutive month while businesses in the sector were optimistic for the year ahead.

U.S. ADP reported private payrolls increased

U.S. ADP reported private payrolls increased 204k in April after the 228k gain in March which was revised from 241k. The service sector added 160k workers, while the goods producing sector added 44k. For the latter, manufacturing jobs were up 10k, with construction 27k higher. In services, professional/business services paced the gain, rising 58k. Health jobs increased 39k. Leisure and hospitality rose 36k.Trade and transport jobs were up 14k. Jobs in financial services edged up 7k. IT shed 2k workers. Small firms added 62k, while medium were up 88k, with large companies adding 54k. This is another good employment report.

U.S. MBA mortgage market index sank 2.5% accompanied by a 1.6% drop in the purchase index and a 3.5% decline in the refinancing index for the week ended April 27. At the same time, the 30-year mortgage rate jumped 7 basis points to 4.80% the highest level since September 2013. That coincided with the break in the T-note yield over 3.0% to the 3.03% high amid heavy coupon supply last week and concerns that trade war risks could curtail Chinese demand for Treasuries, along with the approach of the FOMC.

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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