The Euro Continues to Climb following Solid Growth Numbers

The EUR/USD moved higher but closed off the session highs as EU GDP came out in line with expectations, while German orders slumped. The Atlanta Fed sees Q2 GDP at 4.5%, which failed to buoy the greenback.

Technicals

The EUR/USD moved higher for the 4^th straight trading session. Support is seen near the 10-day moving average at 1.1683.  Resistance on the currency pair is seen near the 50-day moving average at 1.2008. Momentum is positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate. The fast stochastic surged higher reflecting accelerating positive momentum.

Eurozone Q1 GDP growth Was in Line with Expectations

Eurozone Q1 GDP growth was confirmed at 0.4% quarter over quarter, 2.5% year over year, as expected and in line with the preliminary release. The breakdown, which was released for the first time, showed private consumption growth accelerating to 0.5% quarter over quarter from 0.2% quarter over quarter, while public consumption stagnated. Exports contracted -0.4% quarter over quarter after jumping 2.2% quarter over quarter in Q4 last year and net exports detracted -0.1% points from the quarter growth rate. The data and the slowdown in the quarterly growth rate from a strong 0.7% quarter over quarter in Q4 2017 was partly due to special factors, including adverse weather conditions and the timing of Easter this year.

German orders slumped

German orders slumped -2.5% month over month in April, with the March reading revised down to -1.1% from -0.9%. The second months of contraction left the annual rate at -0.1%, down from 2.9% year over year in March and the first negative reading since July 2016. Expectations had been for a rebound from the dip in the previous month and while there may be some special factors still at play related to holiday’s and bridging days, the numbers are a worry and will add to concerns that the German recovery is slowing down much faster than feared. The breakdown showed domestic orders in particular weighing down the index, with a drop of -4.8% month over month. Export orders rose for a second months and that Eurozone orders slumped -9.9% month over month, after already falling -2.9% month over month in March cast a shadow over the outlook.

NEC Director Kudlow previewed the G-7 meeting

NEC Director Kudlow previewed the G-7 meeting endorsing fast U.S. growth, while noting that trade issues will be discussed, including bilateral meetings with Canadian and French leaders. He also expects shared security issues like N. Korea to be discussed. He attributed U.S. success to tax policy and regulatory rollback, along with trade advocacy by the president. Kudlow touted record small business confidence and low unemployment, which show that U.S. policies are working and he hopes that our economic partners join with us in embracing growth.

Kudlow said the Chinese-U.S. negotiations on trade will lower the trade deficit if they work, but there are no deals at the moment. He hopes that the trade gap with China would fall if Beijing lowers tariffs. He believes that Trump has been clear on reform on the basis of “reciprocity” and will do what is necessary to protect U.S. workers and businesses. Kudlow said the WTO has become “completely ineffectual,” as major countries won’t even abide by its decisions, nor will the U.S. as a multilateral organization won’t determine U.S. policy. He says we’re not engaged in a trade war and don’t blame Trump, who is the first leader to act on these inequities. Kudlow said that most countries agree with the U.S. stance on China, but the U.S. is the first to stand its ground.

Atlanta Fed’s GDPNow model estimates a 4.5% real growth

Atlanta Fed’s GDPNow model estimates a 4.5% real growth rate for Q2 following the April trade report as the nowcast contribution of net exports to real growth in Q2 inched down to 0.31% from 0.42% previously. The headline forecast is down slightly from the 4.6% projection from Tuesday after the stronger than expected ISM services report.