The EUR/USD whipsawed following ECB officials suggesting markets misjudged Draghi comments. According to reports citing unnamed ECB policy makers Draghi's
The EUR/USD whipsawed following ECB officials suggesting markets misjudged Draghi comments. According to reports citing unnamed ECB policy makers Draghi’s speech yesterday was intended to strike a balance between recognizing economic strength and warning that monetary support is still needed. So, after Draghi’s reference to possible policy changes served as a reminder that tapering announcements were merely postponed, not cancelled at the last meeting, we are now likely to get more comments from officials referencing Draghi’s insistence that any change will be prudent and gradual and that in times of strengthening growth, this could still mean that the degree of stimulus will remain unchanged. Draghi clearly remains eager to dampen the impact of tapering talk, despite yesterday’s comments.
The EUR/USD dropped 0.008 but then rebounded during the balance of the North American trading session and continued its climb higher. The exchange rate broke through resistance near the August 2016 highs at 1.1365, and is now poised to test 1-year highs at 1.1425.
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 moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate.
EMU M3 money supply growth accelerated slightly to 5.0% year over year in May from 4.9% year over year in the previous month. The counterparts, which have become the more closely watched indicators, showed loans to financial corporations expanding 1.6% year over year, unchanged from April. Loans to households expanded 2.7% year over year in May, after 2.6% year over year. Adjusted for sales/securitizations, loan growth accelerated to 2.6% from 2.4% year over year, driven by a sharp rise in consumer credit growth. Draghi and Co have argued that the central bank’s measures continue to underpin lending growth and today’s data will back the notion that lending conditions remain favorable and that banks are passing this on. However, the acceleration in consumer credit growth is something officials will be keeping an eye on especially in countries where banks continue to struggle with a high level of old, non-performing loans.
Italian HICP inflation fell back to just 1.2% year over year in June, from 1.6% year over year in the previous month. Base effects continue to play a role and transport costs, which include petrol prices, rose 3.0% year over year, a marked deceleration from the 3.7% year over year in the previous month. The ECB already scaled back its inflation forecast on the back of lower oil prices at the last meeting and while the Italian number points to weaker than expected Eurozone headline rates in June, this doesn’t change the prospect of ECB tapering next year, although the data will back Draghi’s call for prudence and cautious moves as the central bank starts to scale back support.
U.S. pending home sales fell 0.8% to 108.5 in May following the 1.7% decline in April to 109.4 which was revised from 109.8. This is a third straight monthly decline and the index has fallen in four of the five months of 2017 to date. Sales declined in the West the South the Northeast and were unchanged in the Midwest. Compared to last May, sales are up 0.5% year over year after a 5.8% decline in April which was revised from -5.4% year over year. The National Association of Realtors blames much of the weakness in sale to a lack of inventory.
U.S. goods trade deficit narrowed to -$65.9 in May, surprising forecasts for little change, after widening to -$67.1 billion in April which was revised from -$67.6 billion. May exports increased 0.4% to $127.1 billion after dropping 0.9% to $126.6 billion in April. Imports dipped 0.4% to $193.0 billion following the prior 1.0% increase to $193.8 billion which was revised from $193.4 billion. The data suggest upside risk to GDP forecasts. Advance wholesale inventories rebounded 0.3% in May after slipping 0.4% in April which was revised from -0.5%. Advance retail inventories rose 0.6% versus the prior 0.2% slide which was revised from -0.3%.
David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.