EUR/USD Daily Technical Analysis for July 28, 2017

European core yields moved lower, which weighed on the EUR/USD despite a record high on German consumer confidence as the Fed’s reluctance to commit to a time for an unwind to the balance sheet beyond “relatively soon”. EMU money supply came in as expected adding little to the inflation argument. U.S. trade numbers came in as expected by a large jump in Durable goods orders allowed the greenback to gain traction. The Fed Chicago Nation Activity index increased showing strength in U.S. manufacturing, while jobless claims increased, keeping the 4-week moving average unchanged.

Technicals

The EUR/USD hit a fresh 2-year high, climbing initially on the back of a stronger than expected German consumer confidence figure.  The currency pair edged lower, retracing most of Wednesday’s gains, but made a higher high and a higher low which reflects an uptrend.  Support is seen near the 10-day moving average at 1.1597, while resistance is seen near the weekly highs at 1.1777. Positive momentum has decelerated as the MACD (moving average convergence divergence) histogram prints in the black with a flattening trajectory which points to consolidation.

German Consumer Confidence Hit Record High

German GfK consumer confidence surges to record high of 10.8 from 10.6 in the previous month. The unexpected jump higher ties in with record Ifo readings and confirms that the German recovery remains firmly on track. More arguments for the ECB to take begin the normalization process and reduce monthly asset purchases. The full GfK breakdown, showed also falling price expectations though, alongside improved economic confidence and the willingness to buy dipped despite a sharp drop in the willingness to save.

EMU M3 Came in as Expected

EMU June M3 money supply growth steady at 5.0% year over year, as expected. Borrowing data meanwhile showed a slowdown in the growth rate of loans to non-financial corporations to 1.3% year over year from 1.6% year over year, something for the doves at the ECB to argue with, although at the same time, recent ECB has highlighted the growing importance of market financing for non-financial corporations, which suggests bank lending is becoming less important. The growth rate of loans to households accelerated to 3.0% year over year, as a renewed acceleration in lending for house purchases outweighed the dip in consumer credit growth.

The ECB’s Nowotny agrees with Weidmann who said it’s time to slowly go off the gas, also due to a technical reason as QE ends at year-end, confirming that “of course” discussions have begun about tightening policy. He did admit, however, that while the real economy is going up, inflation is still far from our target.

The Fed Gave No Time Frame on QT

FOMC held rates steady and gave no firm date on the balance sheet unwind. However, the policy statement did indicate the run-off will begin “relatively soon,” versus this year in the June statement, though it basically reiterated comments from Fed Chair Yellen in her recent testimony. The decision was unanimous.

The Fed said the economy has been rising moderately while job gains have been “solid.” On inflation the Fed said overall and core prices have “declined and are running below 2 percent; survey-based measures of longer-term inflation expectations are little changed, on balance.” Inflation developments will continue to be monitored “closely.” One important change versus the June statement was the elimination of word “recently,” referring to the decline in inflation, suggesting there’s some concern the weakening will be more long lasting.

Chicago Fed National Activity Index Rose

U.S. Chicago Fed National Activity index rose to 0.13 in June from a revised -0.30 in May which was revised down from -0.26 and a 0.36 in April which was revised from 0.57. The 3-month average improved to 0.06 last month from May’s -0.04 which was revised from 0.04 and 0.12 in April. Helping boost the headline index were gains in production-related indicators. The index is a weighted average of 85 indicators where a positive print corresponds to above-trend growth.

The U.S. Trade Deficit Narrowed

U.S. Advance goods trade deficit narrowed to -$63.9 in June, a little more than forecast, from -$66.3 billion in May which was revised from -$65.9 billion. Exports rose 1.4% to $128.6 from $126.8 billion which was revised from $127.1 billion, while imports dipped 0.3% to $192.4 billion from $193.1 billion which was revised from $193.0 billion. Advance June wholesale inventories rose 0.6% to $597.5 billion from $594.2 billion which was revised from $593.4 billion. Advance retail inventories also increased 0.6% to $621.1 billion from $617.4 billion in May.

U.S. Initial jobless claims rose 10k to 244k in the week ended July 22 from 234k. The four-week moving average was unchanged at 244k, while continuing claims fell 13k to 1,964k from an unrevised ,977k previously.