EUR/USD Daily Technical Analysis for June 1, 2017

The EUR/USD moved higher on Wednesday despite softer than expected inflation figures that were reported out of the EU.  The French HICP data was also disappointing but this was telegraphed by the weak German data released on Tuesday.  German retail sales also slumped but the jobs data was stronger than expected. Give that the ECB has a single mandate that focuses on inflation, Draghi should be able to make a strong argument to keep the central banks forward guidance dovish.

Technicals

The EUR/USD continues to form a bull flag pattern which is a continuation pattern that pause and refreshes. This also looks like a cup and saucer which is a breakout pattern, and will be realized if prices pierce through last week’s highs at 1.1265. The next level of target resistance on the currency pair is seen near the November 8, highs at 1.1299.  Support on the currency pair is seen near the 10-day moving average at 1.1189.

Momentum is neutral as the MACD (moving average convergence divergence) index prints near the zero-index level with a flat trajectory on the MACD histogram which reflects consolidation. The relative strength index (RSI) on the other hand moved higher with price action reflecting accelerating positive momentum.

German Retail Sales Slump in April

German retail sales slump in April, with sales down -0.2% month over month and -0.9% year over year, the latter down from 2.9% year over year in the previous month. A disappointing number, although it is difficult to say how much noise the Easter effect created. And given that the official retail sales numbers are often volatile and cover less than 50% of private consumption the data doesn’t necessarily mean that consumption growth, which has been supporting the recovery, is slowing down, especially as the labor market remains robust.

Eurozone HICP Inflation Was Weaker than Expected

Eurozone HICP falls to just 1.4% year over year in May, after weaker than anticipated national data, but lower than initial forecasts. The deceleration in the headline rate from 1.9% year over year in the previous month will back the arguments of Draghi and Praet, who concede that the recovery is looking stronger, but also stress that inflation is still looking weak. Especially as core inflation fell back to 0.9% from 1.2% in the previous month.

French Inflation was Weaker than Expected

French HICP much weaker than expected at 0.9% y/y. French numbers joint the trend seen in Germany and Spain and came in considerably lower than anticipated, with means our forecast for the pan Eurozone rate of 1.4% could even be undershot. More support then for the doves at the ECB council, which are arguing that while the recovery is broadening and strengthening, inflation trends remain subdued. Indeed, with oil prices off the highs seen earlier in the year, inflation forecasts could well be cut in the new June ECB projections. At the same time wage growth also remains subdued, despite the improvement on labor markets.

Eurozone Unemployment Fell in April

Eurozone unemployment falls more than expected to 9.3% in April, while March was revised down to 9.4% from 9.5% reported initially. The number comes at the heel of a record low German jobless rate for May and ties in with PMI reports suggesting that companies continue to take on more staff. The economy continues and growth is strengthening and clearly boosting the outlook for the labor market, but jobless rates remain very uneven across countries, youth unemployment remains far too high and most importantly for the ECB, wage growth on a Eurozone aggregate level remains quite low.

The German Jobless Rate Hit a Record Low

The German jobless rate at new record low. German jobless numbers dropped -9K in May, slightly less than consensus forecast, but still bringing the seasonally adjusted jobless rate down to just 5.7%, from 5.8% in the previous month. Employment numbers, which are only available until April, also show ongoing improvement. Wage growth in Germany meanwhile is above the Eurozone average, but still looking modest considering that the labor market is becoming tight.

U.S. MBA Mortgage Market Index Dropped

U.S. MBA mortgage market index sank 3.4% which was accompanied by a 1.4% drop in the purchase index and a 5.6% decline in the refinancing index. These declines weren’t really motivated by mortgage rates, since the average 30-year fixed rate was unchanged at 4.17% for the May 26 week. Housing stats have turned a bit more mixed this spring as supplies continue to come up shy of demand, particularly in low cost housing.