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EUR/USD Daily Technical Analysis for December 11, 2017

By:
David Becker
Published: Dec 8, 2017, 20:09 UTC

The EUR/USD rebounded from its lows and closed at the highs of the session which still was a minor loss on the day.  A stronger than expected payroll

daily economic

The EUR/USD rebounded from its lows and closed at the highs of the session which still was a minor loss on the day.  A stronger than expected payroll report, initially buoyed the greenback, but yields came off late in the U.S. session as traders focused on the lack of wage gains allowing the currency pair to gain a foothold.  Brexit appears to be making headway, as the UK and EU agreed to more issues, while the German SPD agreed to have coalition talks with Merkel’s CDU/CSU alliance.

Technicals

The EUR/USD moved lower bouncing ahead of support near an upward sloping trend line that comes in near 1.1650.  Resistance is seen near the 10-day moving average at 1.1843.  The trend is still higher, but prices are making a top and a break of support below the trend line near the November lows at 1.1540, would lead to a test of target support near the June lows near 1.1119. Momentum has turned negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. The MACD histogram is printing in the red with a downward sloping trajectory which points to a lower exchange rate.

eur-120817

Germany’s SPD agrees to coalition talks with Merkel’s CDU/CSU alliance

Schulz was re-elected as leader of the Social Democrats (SPD) and after initially ruling out another grand coalition under Chancellor Merkel, he managed to get the backing from party members for the start of talks that many see as the only alternative to new-elections early next year. As Merkel’s failed round of talks with Green Party and liberal FDP showed, formal talks do not necessarily mean that a compromise can be found and the coalition will go ahead. Indeed, recent changes at the top of Merkel’s Bavarian ally CSU will complicate the talks. Still, there is fresh hope that the political wrangling in Germany will end sooner rather than later, as Brexit talks, EU reform projects, but also necessary structural reforms in Germany will require a stable government. More news then to bolster risk appetite stocks, while sending yields back on an upward trajectory.

French Industrial Production Surges Higher

French industrial production surges higher, outpacing Germany. The 1.9% month over month rise in French October production and 2.7% month over month gains in the manufacturing reading are in stark contrast to the disappointing German numbers Thursday, which showed production contracting for a second consecutive month on October. The French recovery has been impressive and survey numbers suggest further improvements ahead. Companies preparing for Brexit and alternating supply chains may provide a temporary boost, but for the Eurozone as a whole this is a very bullish sign as it suggests that the recovery is increasingly broad based across sectors and countries, putting further pressure on Draghi to finally commit to an end date for QE as the number of voices warning that monetary policy is too accommodative for the state of the economy is growing.

Brexit divorce terms agreed and Riskier asset Surge

The agreement between the EU and UK on divorcing terms has only a muted impact on the pound, which is up by an average 0.2% versus the G3 currencies. While the divorce settlement has been welcomed by many, as the risk of a “no deal” exit from the EU is now out of play, the next phase of negotiations, to discuss a post-Brexit trade deal, will be tougher as the 27 remaining EU members won’t likely be as unified in their collective position as they were with the divorce deal. And there remains uncertainty about what Brexit will actually look like — whether a Norway-like model which is free access to the single market, but at the concession of allowing free movement or a Canadian style trade deal which would exclude the UK’s key financial sector, or a simple “hard” exit.

 

U.S. Nonfarm Payrolls Beat Expectations

U.S. nonfarm payrolls increased 228k in November, compared to expectations of 190K, after climbing 244k in October which was revised from 261k following the 38k hurricane-restrained September gain which was revised from 18k. The unemployment rate held at 4.1%. The labor force bounced 148k versus -765k in October, with household employment up 57k from -484k. Earnings rose 0.2% from -0.2% which revised down from unchanged. Hours worked increased to 34.5 from 34.4. Private payrolls were up 221k compared to October’s 213k which was revised from 252k, with a 62k gain in the goods production sector and a 24k gain in construction, while manufacturing rose 31k. The service sector added 159k. Government employment rose 7k, but the Federal side shaved 3k.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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