EUR/USD Daily Technical Analysis for July 12, 2017

European yields are rising again which has buoyed the EUR/USD. Cautious ECB comments over may have given bond markets a respite, but the correction in yields has started and with the Fed discussing changing the balance sheet is appears that central banks are head for exit steps. Stronger than expected Italian Industrial Production and weaker than expected weekly chain store sales has allowed the EUR/USD to test resistance.

Technicals

The EUR/USD is forming a bull flag pattern and a close above resistance near the 1.1444 level would constitute a breakout.  Support on the currency pair is seen near the 10-day moving average at 1.1397.  Prices are testing resistance and a break could lead to target resistance near 1.1550. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flat trajectory which reflects consolidation.

Italian Industrial Production Rebounded in May

Italian industrial production bounced back 0.9% month over month in May, after falling -0.4% month over month in the previous month. A stronger rebound than median expectations, but tying in with robust German and French numbers and confirming that industrial production is back on track after the Easter period. the three months trend rate improved to 0.2% from 0.0% and the working day adjusted annual rate rose to 2.8% from 0.9%. More signs then that Eurozone growth remained strong in the second quarter.

U.S. Chain Store Sales Declined

U.S. chain store sales dipped 0.2% in the week ended July 8, following the 0.1% uptick in the July 1 week. Compared to the same week last year, sales accelerated to a 2.9% year over year rate versus 1.9% year over year previously, which matches the strongest rate since October 1, 2016.

U.S. Consumer Credit Surged

U.S. consumer credit surged $18.4 billion in May, following the upwardly revised $12.9 billion April gain which was $8.2 billion. Non-revolving credit continued to lead the strength, rising $11.0 billion versus $11.8 billion previously which was revised from $6.7 billion. Revolving credit increased $7.4 billion after edging up $1.2 billion in April which was revised from $1.5 billion. For Q1, credit climbed $45.5 billion which was revised from $47.5 billion and was up $57.8 billion in Q4 which was revised from $60.6 billion.

U.S. Small Business Index Dipped

U.S. NFIB small business optimism index fell to 103.6 in June from 104.5 in May. It’s the lowest since the 98.4 in November. The index was as high as 105.9 in January, which was the best since the 106.1 print from December 2004. The all-time high is 107.4 from November 2004. The percentage of firms reporting plans to hire fell to 15% from 18%. Expectations for a better economy fell to 33% from 39%. But those firms expecting to increase capex rose to 30% from 28%.

S&P Does not See a BoE Rate Hike Until 2019

S&P says the UK won’t be ready for a rate hike until mid-2019, stressing that Brexit-related uncertainties have and will continue to reduce economic growth. The agency forecasts UK growth at 1.4% for this year, and believes the BoE’s ultra-accommodative monetary policy will persist over the medium term, even though three of the eight-member MPC voted for a 25-basis point repo rate hike at the June policy meeting.

BoE’s Broadbent Was Silent on Rates

BoE MPC member Broadbent kept mum on interest rates during a speech he delivered before the Scottish Council for Development and Industry earlier. Broadbent was among the majority of MPC members to vote for unchanged policy at the June meeting, which had been a surprise for markets as three of his colleagues voted for a 25 basis points hike in the repo rate. He spoke mostly about his view on Brexit risks, concluding that “put simply, a significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things that it currently imports and is relatively less good at.” Broadbent argued that this, at least initially, would both lower income as trade shifts away from services exports, which the UK has a comparative advantage in, while raising costs as production shifted more towards food and machinery, areas where the UK has a comparative disadvantage.