EUR/USD Daily Technical Analysis for July 17, 2017

U.S. yields moved lower in the wake of softer than expected U.S. data and outperformed European core yields which came down from the highs seen Thursday. Tapering concerns have eased somewhat as Yellen turns cautious. Indeed, while Thursday’s announcement that Draghi will speak at Jackson Hole raised fears that he will use the opportunity to lay out the central bank’s tapering schedule, the symposium may also be a platform for central bankers to try and assure markets that central banks will take a careful approach, even if global monetary support clearly has eased.

Technicals

The EUR/USD moved back to the July highs, and are poised to test resistance near the 1.1444 level.  Support on the currency pair is seen near the 10-day moving average at 1.1405. Momentum is neutral as the MACD (moving average convergence divergence) index prints near the zero index mark, which the MACD histogram prints in the black with a flat trajectory which points to consolidation for the exchange rate.

The ECB is Weary of Tapering QE

ECB weary of putting end date on QE, according to reports. ECB officials are shying away from putting an end date to QE and asset purchases. Hardly a surprise as so far, the ECB still has an easing bias on QE, but against Thursday’s taper fear the source story will add further re-assurance that Draghi won’t suddenly turn hawkish at Jackson Hole, even if tapering is set to start early next year.

Italian Inflation Was Confirmed

Italian HICP inflation was confirmed at 1.2% year over year, down from 1.6% year over year in the previous month. No surprise there and leaving the Eurozone number on course to be confirmed at 1.3% year over year, far below the 2% upper limit and backing the arguments of Praet and Draghi, who are favoring a very cautious approach to exit steps. As elsewhere lower energy prices played a role in the deceleration of the annual rate and transportation cost increases fell back to 3.0% year over year in June, from 3.7% year over year in May and versus 5.6% year over year in April.

Eurozone Trade Surplus Widened

Eurozone seasonally adjusted trade surplus widened at 19.7 billion in May, from EUR 18.6 billion in the previous month. Exports as well as imports improved and intra-Eurozone dispatches picked up after the Easter break. Accumulated data for the first five months of the year though show a surplus of just EUR 82.9 billion, down from EUR 101.5 billion in the first five months of 2016.

U.S. CPI Was Softer than Expected

U.S. CPI was flat in June, with the core up 0.1%, as we forecast, following a 0.1% dip in the May headline, and a 0.1% gain in the ex-food and energy component. Compared to last June, overall prices slowed to a 1.6% year over year clip from 1.9% year over year, while the core rate was steady at 1.7% year over year. Expectations were for a 0.2% gain in the headline. Energy prices declined another 1.6% from -2.7% previously and have dropped in four of the six months of 2017. Transportation slipped 0.7%, and commodities were down 0.3%. Tobacco costs fell 0.4%. Services costs edged up 0.2%. Housing was up 0.1%, with the owners’ equivalent rent measure up 0.3%. Apparel dipped 0.1%.

U.S. Retail Sales Dipped

U.S. retail sales slipped 0.2% in June, with the ex-auto component also declining 0.2%. The 0.3% May decline was revised to -0.1%, while the -0.3% for the ex-auto figure was not changed. Excluding autos, gas, and building materials, sales were 0.2% lower after the flat reading in May. Gasoline station sales fell 1.3% following the 3.0% plunge in May. Miscellaneous sales tumbled 3.1% after a 0.7% decline. Eating and drinking establishment sales were off 0.6%, food and beverage sales fell 0.4%. Motor vehicles and parts rose 0.1% on the heels of the 0.9% improvement in May. Building materials gained 0.5%. The report was on the weak side relative to expectations.

Industrial Production Increased More than Expected

U.S. industrial production increase in June, rising for the 5^th consecutive month. IP rose by 0.4% in June, more than the 0.3% expected by economists and was revised higher in May to 0.1%. Mining output increased 1.6% while utilities output was unchanged. Manufacturing rebounded 0.2%, in line with economist expectations, after an unrevised 0.4% fall in May.