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The Euro Tumbles to Support as but the Exchange Rate is Oversold

By:
David Becker
Published: May 1, 2018, 16:43 UTC

The EUR/USD broke down on Tuesday, despite a softer than expected U.S. ISM Manufacturing report. The exchange rate tumbled to support as the dovish bent

GBP/USD daily chart, May 01, 2018

The EUR/USD broke down on Tuesday, despite a softer than expected U.S. ISM Manufacturing report. The exchange rate tumbled to support as the dovish bent conveyed by the ECB last week continue to weigh on the currency pair.

Technicals

The EUR/USD tumbled to support and is holding near the 200-day moving average at 1.2011. A close below this level could lead to a test of the Fibonacci retracement level which retraces 38.2% from the highs made in February down to 1.1778.  Resistance is seen near the 10-day moving average at 1.2193.  Momentum is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices. The fast stochastic is oversold printing a reading of 7, which is well below the oversold trigger level and could foreshadow a correction.

The ISM Manufacturing Index was Weaker than Expected

The ISM Manufacturing index showed that national factory activity dropped to a reading of 57.3 last month from 59.3 in March. The survey’s prices index increased 1.2 points to 79.3, the highest reading since April 2011. Last month, price increases occurred across 17 of 18 industry sectors. The ISM’s measure of factory employment dropped in April and the ISM said there were indications that labor and skill shortages were affecting production output.

Construction spending tumbled

Construction spending tumbled 1.7% in March. February data was revised to show construction spending increasing 1.0% instead of the previously reported 0.1% gain. Economists had forecast construction spending accelerating 0.5% in March. Construction spending rose 3.6% on a year-on-year basis.

U.S. chain store sales fell

U.S. chain store sales fell 1.4% in the week ended April 28, after edging up 0.5% previously. And the 12-month pace slowed to 2.4% year over year versus 3.7% year over year previously, and the 3.8% clip from April 14. This is the softest year over year pace since early March, partly attributable to Easter, which fell earlier this year, April 1, compared to March 16 in 2017.

UK April manufacturing PMI disappointed

UK April manufacturing PMI disappointed at 53.9 in the headline reading, a 17-month low after dropping from 54.9 in March, which itself was revised down from 55.1. The median forecast had been for 54.8. The survey found slower growth in output, new orders and employment, along with an abatement in price pressures. Business optimism ebbed to a five-month low, too, while decline in work backlogs, supply-chain constraints and rising inventories point to subdued potential for output growth over the coming months. Overall, the report paints a picture of moderating expansion in the manufacturing sector in the first month of the second quarter. Unlike the case in February and March, bad weather can’t be blamed either. The data will see sterling markets further price out the odds for the BoE to hike rates on May 10th.

UK March lending data were mixed

UK March lending data were mixed, with net mortgage lending lifting to GBP 4.0 billion from GBP 3.9 billion while net consumer credit fell to GBP 0.3 billion from GBP 1.7 billion. Mortgage lending came in near expectations at 62.9 k after 63.8k in the month prior.

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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