EUR/USD Daily Technical Analysis for July 14, 2017

The EUR/USD edged lower on Thursday whipsawing following a stronger than expected U.S. jobless claims report and solid U.S. PPI.  The in-line inflation figures in Europe failed to buoy the currency which has declined for the second straight trading session.

Technicals

The EUR/USD moved lower during European hours but bounced back during the North American trading session, following a deluge of inflation data.  The exchange rate is hovering near support near the 10-day moving average at 1.1401, and is poised to test support near an upward sloping trend line that comes in near 1.1315.  Resistance is seen near the July highs at 1.1444.  Momentum is turning negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses below the 9-day exponential moving average of the spread.

U.S. PPI Was Slightly Stronger than Expected

U.S. PPI edged up 0.1% in June, with the core up 0.1% as well. There were no revisions to May which posted a flat headline reading with a 0.3% increase in the ex-food and energy component. On an annual basis, PPI slowed to a 2.0% year over year pace from 2.4% year over year. The core dipped to 1.9% year over year from 2.1% year over year. For the internals, Goods prices were up 0.1% as a 0.6% increase in food offset a 0.5% decline in energy. Services costs were up 0.2%.

Jobless Claims Dropped

U.S. initial jobless claims fell 3k to 247k in the week ended July 8 after rising 6k to 250k in the July 1 week which was revised from 248k. That brought the 4-week moving average to 245.75k, from 243.50k. Continuing claims dropped 20k to 1,945k in the July 1 week, erasing the 20k advance to 1,965k previously.

Yellen Refreshes View

Fed Chair Yellen’s refreshed view of the U.S. economy and monetary policy was nearly unchanged as she and her Committee-mates remain optimistic on growth. And though there remains some disappointment over the lack of inflation pressures, there were no fresh concerns over softening in prices. The Fed has continued to ascribe the shortfall to transitory factors, and continues to believe that the pickup in the economy will bring upward pressures to bear. The FOMC revealed some details of its balance sheet normalization process in its June policy announcements, and again in its MPR, with Yellen summing up in her testimony.

German Inflation was Confirmed

German June HICP was confirmed at 1.5% year over year national CPI at 1.6% year over year, which was broadly expected, although the slight uptick in the headline rate over the month was against the general trend in the Eurozone.  Lower oil prices are playing a key factor as annual energy price inflation has now turned negative and stood at -0.1% year over year in June, down from 0.8% year over year in May and compared to 2.8% year over year at the start of the year. Prices for light heating oil rose merely 0.9% year over year in June, after still rising 11.7% year over year in May and a staggering 42.5% year over year in January. So base effects from energy prices are now holding back the headline rate, and indeed the ECB already cut back its inflation projection on the back of lower than anticipated oil prices.

French Inflation was in Line with Expectations

Final French HICP inflation was confirmed at 0.8% year over year, national CPI at 0.7% year over year, in line with the preliminary number and down from 0.9% year over year and 0.8% year over year respectively in the previous month. No surprise then for the ECB, which has already been revising down its inflation projections based on lower than anticipated oil prices. With headline rates across the Eurozone still far below the ECB’s definition of price stability the data adds to the arguments of Praet and Draghi, who are not eager to tweak the forward guidance yet again and commit to exit steps ahead, although the fact that rates are drifting apart again across Eurozone countries clearly is also a matter of concern.

UK Housing Prices Dropped

The June RICS UK house price measure dove to +7% from +17%, posting its weakest reading since the immediate wake of the Brexit vote last year. The survey found 44% of respondent attributing the weakness to political uncertainty, with the June 8 election having unexpectedly produced a minority government, and 27% to Brexit. The report today follows the 1.0% contraction in house prices in the June Halifax price index.