EUR/USD Daily Technical Analysis for April 24, 2017

The EUR/USD consolidated European yields backed up ahead of this Sunday’s French elections. Shootings in Paris on Thursday kicked off the election weekend, and generated further anxiety as investors wait for the results. French bond and stock markets managed to underperform as the race tightens up but Macron seems to be holding on to a lead going into Sunday’s election, which is shaping up to be a tight four-way race.  French PMI’s were stronger than expected, while the German readings were mixed. UK retail sales fell more than expected, as the UK heads toward Brexit. Overall the EMU PMI’s point to a solid start for the Q2.  The dollar was neutral despite a stronger than expected existing home sales report.

Technicals

The EURUSD was nearly unchanged on the trading session, having initially tested resistance near a downward sloping trend line that connects the highs made on election day in the U.S. in November and the highs in March that comes in near 1.0800.  Support on the currency pair is seen near the 10-day moving average at 1.0660.  Momentum on the currency pair remains positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The index is printing in the black with an upward sloping trajectory which points to a higher exchange rate.

French PMI’s Were Stronger than Expected

French PMIs were higher than expected, with the manufacturing reading rising to 55.1 from 53.3 and the services reading nudging higher to 57.7 from 57.5. The Easter effect may have distorted the picture somewhat, but the overall improvement in the composite reading to 57.4 from 56.8 confirms that the French economic performance is finally catching up.

German PMIs were mixed, with the manufacturing reading coming in a tad higher than expected, but still falling back to 58.2 from 58.3. The real disappointment though was the services number, which fell back to 54.7 from 55.6 in the previous month. The Easter effect and the spell of cold weather this month may have impacted numbers somewhat and composite reading of 56.3 still points to ongoing robust expansion, but is not just below the March reading.

UK March retail sales fell more than expected, by 1.8% month over month, reversing the 1.7% month over month growth seen in February. The median expectation had been for a more modest 0.3% month over month contraction. The year over year figure rose 1.7%, slightly up on the 1.6% year over year in the month prior. In the three months to March, sales fell 1.4% quarter over quarter, which is the first quarterly decline since 2013. The ONS stats office pointed to higher prices as being the main culprit.

Eurozone Current Account Widened in February

Eurozone current account surplus widened in February to reach EUR 37.9 billion, up from EUR 26.1 billion in the previous month, driven by a widening of surprises in both goods and services balances, while the deficit in the secondary income balance narrowed. The unadjusted financial account showed direct and portfolio investment inflows of EUR 72.9 billion, driven by a jump in portfolio investment. Accumulated data for the 12 months to February show total direct and portfolio investment inflows of EUR 350.9 billion, up from EUR 338.1 billion in the 12 months to February last year.

EMU PMIs Signal Solid Q2

EMU PMIs signal strong start to Q2, but rising price pressures according to the details of the Markit reports. All readings are now at 72 months high and manufacturing employment rose at a rate not seen since 2000. At the same time, price pressures remain elevated with input cost inflation picking up again, while “average prices charged for goods and services rose at a rate only marginally lower than March’s six year high”. Rising commodity prices and a weak EUR were largely blamed, but supply chains also “continued to tighten, signaling a growing trend towards a sellers’ market for many items”, with delivery times lengthening and rising wage pressures.

Existing home sales increased 4.4% in April rising more than expected as economists had forecast that sales would increase by 2.5%. Sales have now increased to an annual rate of 5.71 million units as of last month according to the National Association of Realtors. This is the highest level the gauge has seen since February 2007. While the number of homes on the market 5.8% 1.83 million units last month, housing inventory was down 6.6% year over year.