EUR/USD Daily Technical Analysis for August 17, 2017

 

The EUR/USD was nearly unchanged on Wednesday after moving lower during the European trading hours, following a softer than expected U.S. Housing Starts report. Draghi is reported to maintain a key message at Jackson Hole and will refrain from delivering new policy.

Technicals

The EUR/USD formed a doji day opening and closing at the same level. Support is seen near the 50-day moving average at 1.1491, while resistance is seen near the 10-day moving average at 1.1784. Momentum remains 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 RSI (relative strength index) is printing a reading of 56, which is in the middle of the neutral range and reflects consolidation.

Draghi is Reported to Maintain Key Message at Jackson Hole.

Draghi reportedly will refrain from delivering a fresh policy message at the Jackson Hole speech. Jackson Hole was the place of Draghi’s famous turn to extended QE, there had been speculation that he would use his speech to signal the end to QE. However, as the central bank head remained reluctant to commit to September as the timing for the announcement on the future of QE it seemed unlikely that he would race ahead and announce a key policy change ahead of the last meeting, especially as officials at the ECB apparently haven’t agreed on a policy path beyond the current schedule of asset purchases, which runs out at the end of the year. Tomorrow’s release of the minutes from the last meeting may give a clearer picture on how advanced the talks are.

Italian Q2 GDP Was Unchanged

Italian Q2 GDP growth came in at 0.4% quarter over quarter, unchanged from Q1 and in line with forecast. The annual rate jumped to 1.5% year over year from 1.2% year over year, the highest rate since 2011 and the tenth straight quarter of expansion. Eurozone Q2 GDP confirmed at 0.6% quarter over quarter, in line with the preliminary number and up from 0.5% quarter over quarter in Q1. The Eurozone recovery not just remains on track, but Italian numbers confirm that growth is broadening across countries, which is encouraging. The ECB doves still argue though, that this is largely thanks to the ECB’s helping hand and indeed Italy clearly is still reliant on support from the central bank and once the ECB’s asset purchase program ends it remains to be seen how the economy will fare with still high debt levels.

Eurozone Q2 GDP Came in As Expected

Eurozone Q2 GDP confirmed at 0.6% quarter over quarter, in line with the preliminary number and up from 0.5% quarter over quarter in Q1. The annual rate was revised up to 2.2% year over year. Robust data with growth broadening across sectors, but also countries and the range between quarterly growth rates among the big 4 getting smaller. Looking ahead survey data suggests activity remains strong and job creation continues while investment is picking up with companies remaining optimistic about the outlook, despite slightly lower PMI readings in July. So far then the recovery remains on track, but geo-political risks, a strong EUR and Brexit concerns continue to hang over the Eurozone outlook and keep Draghi and Co reluctant to commit to a full tapering schedule just yet. Long yields and stock markets remain up on the day after the number.

U.S. Housing Starts Dropped in July

U.S. housing starts dropped 4.8% in July to a 1.155 million clip, weaker than forecast, after climbing 7.4% to 1.213 million in June which was revised from 1.215 million. Single family starts dropped 4.8%, while multifamily starts dipped 0.5%. Building permits fell 4.1% to 1.223 million from a revised 1.275 million which was 1.254 million. Starts declined in the Midwest, in the West, and in the South, but climbed in the Northeast (19.2%).

U.S. MBA mortgage market index rose 0.1% in data released earlier, along with a 1.5% drop in the purchase index and a 1.6% rise in the refinancing index for the week ended August 11. The average 30-year fixed rate mortgage sank 2 basis points to 4.12%, the lowest level since the election as the wheels came off the reflation trade, CPI was tepid and N.Korea rhetoric escalated. Yields have since backed up from lows and markets will reassess the Fed outlook by looking at the Fed minutes of the July 26th decision.