EUR/USD Daily Technical Analysis for August 23, 2017

The EUR/USD traded under pressure as Eurozone spreads widen ahead of Friday’s Draghi Speech at Jackson Hole. Long positions are being shaken out ahead of Draghi comments and following Tuesday’s earth quake off the coast of Naples which further added to concerns about the outlook, and even if the recent economic performance has been improving. The prospect of tapering will see spreads trending wider. German ZEW investor confidence was weaker than expected, but wage growth in the United States remains subdued which should allow the Fed to remain on hold at least until December.

Technicals

The EUR/USD edged lower, giving back most of Monday’s gains.  The exchange rate continues to test the upper end of the recent trading range with resistance seen near the August highs at 1.1910. Support on the currency pair is seen near the 10-day moving average at 1.1769.  Additional support is seen near the 50-day moving average at 1.1536.  Prices are consolidating, forming a bull flag pattern, but the recent choppy conditions, show there is two way flow, and the exchange rate could be capped, especially if Draghi is more dovish than expected when he speaks on Friday.  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 relative strength index (RSI) is very choppy and is printing a reading of 55, which is in the middle of the neutral range and reflects consolidation.

German ZEW Was Weaker than Expected

German ZEW investor confidence was much weaker than expected, with the headline reading falling back to 10 from 17.5 in the previous month. Banks and automakers weighed on ZEW. The ZEW reading for the car sector dropped to -37.3 from -5.5, for banks the outlook dropped to -13.5 from -1.6, highlighting that the number of pessimists is far higher than those optimistic about the outlook.

Reports from the Wall Street Journal are driving rumors that Draghi will lay out QE tapering at Jackson Hole. Speculation that Draghi would use his return to the Symposium where he first hinted at a fully extended asset purchase program to now announce the end of QE end had been making the round immediately after his participation was announced. This conflicts with a Reuters source story suggesting that Draghi will stick to the script, following the official ECB statement that Draghi will make general remarks on the topic of the symposium and last week’s minutes from the July meeting, which suggest bankers haven’t substantially advanced in their discussion on the future of QE meanwhile seem to make this unlikely.

UK Data was Better than Expected

The UK government finance data showed an unexpected surplus, of GBP 0.2 billion in July data. This is the first surplus for a July since 2002. The median forecast had been for a deficit of GBP 1.0 billion, while the government borrowed GBP 0.3 billion in July 2016. July is normally when self-assessed income tax receipts spike, and a 10.6% year over year rise in these returns accounted for the unexpected improvement. Total cumulative borrowing for the year is GBP 22.8 billion, up 9% from the same period last year. The data shone a light on the impact that higher inflation rates are having on government financing costs, with debt interest payments rising 18% year over year.

The UK’s CBI industrial trends survey beat expectations in the August survey, with the headline total orders reading of 13, up from 10 in July. The median forecast had been for an unchanged 10 reading. Amid the breakdown of the report, the reading of export orders rose to 11, well up on the long-run average of -19, while selling prices spiked to 19 from 9. Output growth remained strong and broad based, the CBI reports, and respondents said that they expected it to remain so over the next quarter. The report shows that the improvement in export performance has remained a benefit to the export sector, despite rising costs.

The FED SCE Survey Showed Low Wages

Fed’s SCE Labor Market Survey said “Regarding consumer experiences, the July 2017 SCE Labor Market Survey shows an increase in the proportion of individuals who searched for a job, and a decline in the average full-time offer wage. Satisfaction reported by workers with promotion opportunities at their current jobs also declined. Turning to expectations, job transition expectations of those currently employed were unchanged. However, expectations regarding receiving job offers and the amount of average expected offer both declined. The average reservation wage, the lowest wage respondents would be willing to accept for a new job, declined to its lowest level since March 2015.” The Fed introduced this survey as a standalone model as part of the broader Survey of Consumer Expectations (SCE) series, since it “now has sufficient historical date to reveal notable trends.”