EUR/USD Daily Technical Analysis for August 25, 2017

The EUR/USD consolidated at the top end of the trading range, as all eyes turn to Yellen’s and Draghi’s speeches as the Jackson Hole central bank conference on Friday.  Yellen will likely stay on scrip but Fed speak and the recent Fed minutes has paved the way for the end of quantitative easing. Draghi, on the other hand, is likely to remain dovish and if all-goes as planned, the Euro will have a tough time breaking out.

Technicals

The EUR/USD consolidated on Thursday, forming a cup and handle bull flag pattern.  The exchange rate is flat lining, with support seen near the 10-day moving average at 1.1778.  Resistance is seen near the August highs at 1.1910.  Negative momentum has decelerated as the MACD (moving average convergence divergence) index is printing in the red, but the MACD histogram has a positive trajectory which points to a potential crossover buy signal.  The RSI (relative strength index) is chopping around in a relatively tight range printing a reading of 59, which is in the middle of the neutral range and reflects consolidation.

ECB’s Hansson hints at changes to QE composition

While markets are fretting about the future purchase volumes for asset purchases, it seems the ECB is thinking not so much about an extension of the current QE program, but a change to the composition of QE and a new focus in the forward guidance. The minutes to the last meeting already indicated that council members are looking for a way to increase flexibility to either side going forward and as the economy strengthens. Hansson in an interview yesterday suggested that officials continue to favor an easing bias, but suggested that this should not just be seen in terms of the APP, saying that the ECB is not going to tie itself “to a particular instrument, but leave more flexibility on how we technically deliver that degree of accommodation”. “At the end of the day we need to look at the effectiveness of different programs and maybe shift towards a slightly different mix”. Hansson said he doesn’t know yet how this will look like and repeated that the discussion on details was postponed until the autumn, but the comments suggest that there still is an event risk for Draghi’s speech Friday.

Spanish Q2 GDP Increased

Spanish Q2 GDP was confirmed at 0.9% quarter over quarter, bringing the annual rate to 3.1% year over year. The acceleration from 0.8% quarter over quarter in Q1 was mainly due to strong exports and consumption growth. Investment growth fell back to 0.8% quarter over quarter from 2.1% quarter over quarter in Q1, although the variations over the two quarters may also be impacted by the later timing of Easter this year. All in all, the Spanish recovery remains remarkable and is also thanks to the reforms implemented by the government following the crisis. Unemployment remains high though, especially among the under 25s indicating the need for further structural reforms. At the same time, the tourism industry has been getting a major boost lately as other holiday destination like Turkey and Egypt seem less safe, but that has been putting a strain on infrastructure and is also causing tensions on local housing markets. So good numbers at first glance, but still plenty of challenges also because banks and the government are still having to cope with the fallout from the financial crisis.

French Business Confidence Rose

French business confidence unexpectedly climbed to 109 from 108, while manufacturing confidence jumped to 111 from 108, mainly thanks to a rise in the past production indicator, which stood at 23 in August, up from just 9 in July. The reading for overall order books remains stuck in negative territory, and the overall production outlook fell back slightly. Still, the own company production outlook improved to 15 from 11 and confidence in the services sector also improved.

UK Q2 GDP Moved Higher

UK Q2 GDP was confirmed at 0.3% quarter over quarter growth in the second estimate, and at 1.7% in the year over year comparison. The headline growth figures matched both the preliminary estimates and median forecasts, and follows 0.2% quarter over quarter and 2.0% year over year growth in Q1. Among the breakdowns were private consumption rising 0.1% quarter over quarter in Q2, down from 0.4% quarter over quarter in Q1, total business investment at 0.0% after 0.6% quarter over quarter growth in the prior quarter, and services inching up, to 0.4% quarter over quarter growth after 0.3% quarter over quarter in the previous quarter.