EUR/USD Daily Technical Analysis for June 23, 2017

The EUR/USD edged lower as European yields moved lower at a faster pace than their U.S. counterparts. A hawkish tone from the Federal Reserve last week, has been somewhat offset by comment by the ECB’s Praete, who said there could be rate hikes coming in the future.  This neutral to hawkish tone was confirmed in Thursday’s ECB Bulletin. French production was stronger than expected, while U.S. Jobless claims edged up and were basically in line with expectations.

Technicals

The EUR/USD continues to form a topping pattern.  This is a mini head and shoulder pattern, that is forming the right shoulder. A break of the neckline near 1.1120, would lead to a quick test of the 50-day moving average which is target support near 1.1041.  Resistance on the currency pair is seen near the 10-day moving average at 1.1175.  Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices.

The ECB Bulletin Confirms Neutral Bias

ECB bulletin highlights need for ongoing support. The editorial repeated that there is still the need for a substantial degree of monetary accommodation, for underlying inflation pressures to build up and support headline inflation in the medium term. The text repeated that the “risks to the growth outlook are now broadly balanced” and that “very adverse scenarios for the outlook for price stability have become increasingly unlikely to materialize, in particular as deflation risks have largely vanished.” And the report spelled out what was apparent at the meeting that the “Governing Council decided to drop the reference to lower interest rates from its forward guidance on policy rates”. At the same time though the statement highlighted that “measures of underlying inflation continue to remain subdued and have yet to show a convincing upward trend. Therefore, the very substantial degree of monetary accommodation remains appropriate”.

U.K. CBI Survey Was Stronger Than Expected

U.K. CBI survey more upbeat than anticipated, with the total orders reading jumping to a 30-year high of 16 compared to expectations of 7 from 9 in the previous month. The export gauge rose to 16 in June, which was a 22 year high. The good orders number offer a positive outlook as a measure of output growth declined, but while the weak Pound is underpinning export and overall orders, the CBI report also showed continued pressure on prices from a weaker currency, with expectations for output prices elevated this month, even if they remain below the peak seen back in February.

French Production Surged

French production outlook surged higher. The latest French business confidence indicator was mixed, with manufacturing sentiment unexpectedly falling back to 108 from 109 in the previous month. The production outlook indicator meanwhile jumped higher to 17 from 7, suggesting that Macron’s sweeping victory in the legislative election helped to underpin confidence. Own company production outlook fell back slightly over the month in June, but held at high levels.

ECB’s Praet Hints of Rate Hikes

The ECB’s Praet hints at rate hikes on the horizon. The central bank’s chief economist acknowledged that “Germans complain before interest rates are so low”, but added that the discussion on that have been amicable in public and at the ECB governing council. He stressed that “there is a broad recovery that is likely to continue”, with Germany already “a bit further than others”. Prices may still be surprisingly low, but according to Praet “that will change sooner or later. and that will help to bring about a change in monetary policy.

Fed’s Powell Said Volcker Rule can Be Relaxed

Fed’s Powell said there’s room for relaxing the Volcker Rule, in his written remarks prepared for Thursday’s testimony before the Senate Banking Committee. The Fed is exploring ways to improve the bank resolution process. Policymakers are committed toward making the stress tests more transparent. He added the Fed believes small banks could be exempt from the Volcker Rule.

 

Jobless Claims Edged Higher

US weekly jobless claims total 241,000 vs 240,000 estimate. Initial claims for unemployment benefits increased 3,000 to 241,000 for the week ended June 17, according to the Labor Department. Jobless claims for the prior week were revised upwards by 1,000 to 238,000 from 237,000. This week’s tally is the 120th consecutive week that claims have been below 300,000, the threshold associated with a strong labor market. The four-week moving average of claims, considered a better measure of labor market trends as it smooths week-to-week volatility, rose 1,500 to 244,750 last week, the highest since early April.