EUR/USD Daily Technical Analysis for July 19, 2017

The EUR/USD surged higher breaking out as yields moved in favor of the Euro and away from the greenback. The dollar remains under pressure as Fed funds futures continue to show little chance for another rate hike over the near term, with only about 40% risk for action by the end of the year. The next FOMC meeting is July 25, 26 and futures show nearly a zero percent chance of a hike. However, the markets have another policy matter on which to ponder, quantitative tightening. This is where the Fed reverses the quantitative easing that was used to spur on the economy during the financial crisis.

Technicals

The EUR/USD broke out to a fresh 12-month high and is poised to test target resistance near the May 2016 highs at 1.1616.  Support on the currency pair is seen near former resistance now support at 1.1444. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses above the 9-day exponential moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

German ZEW Investors’ Confidence Was Weaker than Expected

German ZEW investor confidence weaker than expected, with the expectations reading falling back to 17.5 in July from 18.6 in the previous month. Expectations had been for a correction in sentiment amid the realization that global central bank support has peaked, but the dip is still more pronounced than anticipated, especially as the current conditions indicator also fell back. More arguments then for the doves at the ECB who are eager not to let markets price in tapering steps too early and we expect Draghi to try and calm nerves at this week’s council meeting, which will be the last ahead of a summer break, with the next meeting only scheduled for September. The ECB meeting on Thursday continues to hang over Eurozone markets, with investors concerned that Draghi may already drop the easing bias on QE.

Greece Looks To Return to the Bond Market

Greece looks to return to bond market for the first time since 2014. Investors are preparing for the first offering of Greek government bonds since 2014, after yields dropped and the government reportedly repaid a three-year bond of EUR 2.1 billion on Monday. Greece is repaying bonds from existing bailout funds, and government insists that there is sufficient cash left over from aid payments to repay maturing debt, there is mounting speculation that Greece is pushing for a return to market funding. Greek 10-year yields have dropped 250 basis points over the last year and at 5.1% are at the lost level since the end of 2009. The IMF may still have concerns about the long-term sustainability of Greek debt and the ECB is unlikely to include it in its QE program any time soon, but a return to markets would be a big step for Greece and also reflects the decline in Eurozone breakup concerns.

U.S. Chain Store Sales Declined

U.S. chain store sales fell 1.3% in the week ended July 15, after dipping 0.2% previously. The annual pace cooled to 2.1% year over year versus 2.9% year over year previously, which was the fastest since last October. Amazon’s record Prime Day shopping record provided some support.

U.S. Import Prices Declined in June

U.S. import prices fell 0.2% in June, with export prices off 0.2% as well. The 0.3% decline in May import prices was revised up to -0.1%, while May export prices were nudged to -0.5% from -0.7% previously. On a year over year basis, import prices slowed to 1.5% year over year from 2.3% year over year. Export price gains were more than halved to 0.6% year over year versus a 1.5% year over year May pace which was revised from 1.4% year over year. Petroleum import prices dropped another 2.2%  versus -1.2% previously which was revised from -3.9%. Excluding petroleum, import prices are up 0.1%. Industrial supplies prices slipped 0.9% from -0.8% which was revised from 1.8%. Foods, beverages prices increased 0.9% versus 1.0% which was revised from 1.2%. As for export prices, agriculture prices dropped 1.5% from -1.6%, with foods, beverages at -1.6% from -2.0%, with industrial supplies flat from -1.3% which was revised for m-1.8%. Excluding agriculture, export prices were flat.