EUR/USD Daily Technical Analysis for August 29, 2017

Eurozone spreads are widening as Eurozone core yields are heading south which helped the EUR/USD gain traction. Draghi may have refrained from commenting directly on current monetary policy in his speech at Jackson Hole, but he failed to calm tapering nerves, even though he repeated that inflation isn’t quite there yet. At the same time, he called on regulators to remain vigilant amid very accommodative monetary policies globally.

Technicals

The EUR/USD continued to break out on Monday, as yields moved higher following Draghi’s failure to refrain from commenting directly on tapering nerves. Traders are concerned that the ECB will begin the process of unwinding quantitative easing.  Prices broke through resistance which is now short term support at 1.1910. Additional support on the currency pair is seen near the 10-day moving average at 1.1807.  Resistance is seen near the December 2014 lows, at 1.2220. Momentum on the exchange rate has turned positive as the MACD (moving average convergence divergence) index 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 moved from negative to positive territory confirming the buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate for the EUR/USD. The relative strength index (RSI) which is a momentum oscillator which measures accelerating and decelerating momentum, moved higher with price action reflecting accelerating positive momentum.

Eurozone M3 Slows

Eurozone M3 growth slows, but credit flows strong. Annual M3 money supply growth came in much lower than expected at just 4.5% year over year in July, down from 5.0% year over year in June. However, the counterparts showed loans to non-financial corporations rose 1.2% year over year, unchanged from June, but with monthly flow data showing a rebound fro 12 from -18 in the previous month. Similarly, flows in loans to households picked up when adjusted for sales and securitizations, while the annual rate remained steady at 2.6% year over year. Consumer credit growth continues to drive the overall improvement though and jumped to 6.6% year over year from 5.9% year over year. Draghi warned last week that regulators need to keep a close eye on developments amid very loose global monetary policies and sharp increases in consumer credit growth are clearly something to keep an eye on not just in the Eurozone.

German IFO Services Improved in August

German Ifo services confidence improved to 110.5 in August from 109.8 in the previous month. Like with the general Ifo business confidence reading, the current conditions indicator actually fell back, but the more forward-looking expectations reading jumped higher – to 103.7 from 102.0 in July. More signs then that the German economy remained strong over the summer quarter.

North Korea launched three short-range ballistic missiles Saturday. According to the U.S. Pacific Command, two of the missiles flew 250k; the other apparently failed on liftoff. This will test President Trump’s promise of “fire and fury” and that North Korea should be “very nervous…because things will happen to them like they never thought possible.” Analysts say the launches are likely in response to the joint U.S.-South Korea military exercises taking place through the end of the month.

The U.S. goods trade deficit increased in July as Exports fell.

The U.S. goods trade deficit increased in July as Exports fell. The data suggested that trade would make a modest contribution to economic growth in the third quarter. The goods trade gap increased 1.7% to $65.1 billion last month. Exports declined 1.3%, weighed down by an 8.0% tumble in shipments of motor vehicles. Capital goods exports rose 1.5%. Imports fell 0.3%, reflecting a 2.8% drop in motor vehicle imports as well as a 1.7% decline in industrial supplies. Capital goods imports rose 2.0% last months and imports of consumer goods dipped 0.1%.

The Commerce Department also reported that wholesale inventories increased 0.4% in July after rising 0.6% in June. However, retail inventories fell 0.2% after advancing 0.6% in June. Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of gross domestic product also fell 0.2% last month after rising 0.5% in June.