EUR/USD Daily Technical Analysis for December 6, 2017

The Euro moved lower as yields dropped and the dollar gained traction, following a softer than expected European Retail Sales report.  While Eurozone Services PMI increased, the U.S. trade deficit widened which could reduce overall growth in the U.S.

Technicals

The EUR/USD moved lower on Tuesday falling through support near the 10-day moving average which is now seen as resistance at 1.1866.  Support is seen near the 50-day moving average at 1.1757.  Additional support is seen near an upward sloping trend line that comes in near 1.1630.  Momentum has turned negative as the MACD (moving average convergence divergence) index 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.

Eurozone Retail Sales Dropped

Eurozone retail sales dropped -1.1% month over month in October, which was more than anticipated and bringing the annual rate down to just 0.4% from 4.0% year over year in the previous month. The three months rate decelerated to 0.1% from 0.5% in the three months to September. A confirmation that sales slowed in October, although with consumer confidence jumping higher in November and survey data suggesting an acceleration in employment growth in the last quarter of the year, consumption trends should continue to support overall growth, even if retail sales numbers for October were somewhat disappointing.

Eurozone Service PMI Rose

Eurozone Services PMI confirmed at 56.2, up from 55.0 in the previous month and in line with the preliminary reading, the composite was confirmed at 57.5, up from 56.0 in October. Strong numbers, with Markit reporting a strengthening of economic expansion across the big-four Eurozone countries with output growth accelerating to the fastest in over six-and-a-half years. Job creation hit a 17-year peak and price pressures intensified.

The UK November PMI Services was Disappointing

The UK November services PMI was disappointing, falling to 53.8 in the headline reading, down from 55.6 in October. The median forecast had been for a much more modest decline, to 55.0. This weighed on the composite PMI, which fell to a 54.9 reading from 55.8 previously, with the underperformance of the service sector more than offsetting the above-forecast improvements in both the construction and manufacturing PMI surveys this month, sectors which together account for little more than 20% of the UK economy. The services PMI showed a sharp acceleration in prices charged alongside subdued employment growth.

U.S. Trade Deficit Widened

U.S. trade deficit widened 8.6% to -$48.7 billion in October, larger than expected, following the 1.3% expansion to -$44.9 billion in September which was revised from -$43.5 billion. Exports were unchanged versus the prior 1.1% gain. Imports were up 1.6% compared to 1.2% previously. The “real” October goods balance was -$65.3 billion from September’s -$62.2 billion, with exports falling 0.2% and imports 1.5% higher. Excluding petroleum, the deficit climbed to -$45.5 billion versus -$41.0 billion which was revised from -$39.5 billion. The trade deficit with China widened to -$35.3 billion compared to the -$34.6 billion in September. The larger deficit could knock Q4 GDP forecasts a little lower.

U.S. Chain Store Sales Fell

U.S. chain store sales fell 4.0% in the week ended December 2, according to The Retail Economist, after sliding 0.4% in the late November report. Compared to the same week last year, sales rose at a 3.7% year over year pace, more than double last week’s 1.4%, and ties the June 18, 2016 print for the strongest clip on record.

U.S. ISM Services Missed Expectations

The Institute of Supply Management’s survey of non-manufacturing firms declined to 57.4 in November, less than the 59 expected by economists. The index measures 17 industries, such as real estate, construction and mining. October’s survey result of 60.1 represents the highest reading since the index’s debut in 2008.

Japanese PMI Service Grew Slower

Japan’s service sector activity grew at a slower pace in November due to a slowdown in outstanding business, but new orders remained relatively strong. The Markit/Nikkei survey released on Tuesday showed its Japan Services Purchasing Managers Index (PMI) fell to 51.2 on a seasonally adjusted from 53.4 in October, which was the highest in 26 months. The index for outstanding business fell to 50.6 from 51.5 in the previous month to the lowest level since February. But the pace of new business was largely steady, dipping only marginally to 53.7 from 53.8 in October. The composite PMI, which includes both manufacturing and services, fell to 52.2 from 53.4 in October.