EUR/USD Daily Technical Analysis for August 10, 2017

Both U.S. and German yields tumbled with Bunds dropping to 6-week low as safe haven demand has been seen amid the latest flare-up in geopolitical tensions emanating out of the Korean peninsula. Volatility increased and the EUR/USD was nearly unchanged as traders looked to exit riskier assets. European stock markets traded under pressure as warring words between North Korea and the U.S. take a toll. Pyongyang threatened a missile strike on the U.S. Pacific territory of Guam after Trump made his “fire and fury” threat. Data on the continent was better than expected especially Italian Industrial production. U.S. productivity came out better than expected which should give a boost to GDP data.

Technicals

The EUR/USD formed a doji day which reflects uncertainty. The exchange rate moved lower initially but rebounded during the North American trading session to close where it opened. Resistance is seen near the 10-day moving average at 1.17887, which support on the currency pair is seen near the 50-day moving average at 1.1437.  Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses below the 9-day exponential moving average of the spread. The MACD histogram is printing in the red with a downward sloping trajectory which points to a lower exchange rate.

Italian Industrials Production Beat Expectations

Italian June industrial production beat expectations in rising 1.1% month over month, better than forecast for a modest 0.2% month over month gain. This followed a 0.7% month over month gain in May. Production rose 5.3% on the year-on-year comparison. Today’s data is the latest in a series, including retail sales and labor market reports, to have both beaten expectations and increase optimism that the economy is on a recovery roll, which in turn is dovetailing with the broader theme in the Eurozone.

The Bank of France Forecasts an Unchanged GDP

The Bank of France forecasts French Q3 GDP at 0.5% quarter over quarter, which would mark an unchanged growth pace from Q2. The central bank’s July manufacturing business climate survey, of which its GDP forecasts are a part of, produced a headline reading of 105 after 103 in June, portending a rise in industrial, services and construction sectors in August. Its service sector business climate headline ticked lower, to 99 after 100 in June, and the construction climate reading dipped to 102 from June’s six-year peak at 103. Overall, the sentiment readings are consistent with France achieving the 1.6% growth in 2017 being forecast by INSEE.

Chinese Inflation Slowed in July

China’s CPI slowed to a 1.4% year over year growth rate in July from 1.5% in June, undershooting expectations. The annual growth rate had been on the rise through May and June at +1.5% since bottoming out at 0.8% year over year in February of this year. That matched the 0.8% low seen in January of 2015 that was the slowest growth rate since the 0.6% pace in November of 2009. Meanwhile, PPI grew at a 5.5% year over year pace in July, matching the growth rate in June as firm commodity prices relative to last year remain supportive. PPI growth accelerated to a 7.8% year over year clip in February after seeing annual declines from March 2012 to August 2016.

U.S. preliminary Q2 productivity grew at a 0.9% pace, better than forecast, versus a revised 0.1% clip in Q1 which was unchanged and 1.3% in Q4 which was revised from 1.8%. Unit labor costs rose at a 0.6% clip last quarter from 5.4% in Q1 and -6.3% in Q4. Q2 output came in at 3.4% versus Q1’s 1.8% which was revised from 1.7%. Compensation per hour grew at a 1.6% from 5.5% previously which was revised from 2.2%, with real compensation growth at 1.9% from 2.3% which was revised from -0.9%. The prices deflator was 0.6% from 0.9% in Q1 which was revised from 1.4%.

Canada Building Permits Increased

Canada building permits values grew 2.5% month over month in June after an upwardly revised 10.7% gain in May. This is another housing report that was contrary to estimates, as permit values were expected to decline after the firm gain in May. Total residential permit values improved 0.9% in June. A 12.5% surge in multi-family dwellings drove the gain in total permit values during June. Single family permits fell 12.5%. Meanwhile, non-residential permit values grew 8.8% month over month in June, driven by a 13.0% rise in the commercial component.