EUR/USD Daily Technical Analysis for June 30, 2017

The EUR/USD broke out, and is poised to continue to move higher as stronger than expected inflation figures are driving European yields upward.  The yield differential is moving in favor of European yields which is paving the way for a higher European currency.  Confidence has also soared to a fresh decade high, and consumer lending is also on the rise.  U.S. Data was mostly better than expected, but U.S. yields are trailing their European counterparts, which is weighing on the greenback.

Technicals

The EUR/USD broke out to fresh 1-year highs above resistance near the August 2016 highs at 1.1365, and poised to test the May 2016 highs at 1.1616.  Support is seen near former resistance at 1.1365, and then the 10-day moving average at 1.1148.  Momentum on the currency pair 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 ESI Economic Confidence Soars to 10-year Highs

EMU ESI economic confidence at highest level in nearly a decade. The Economic Sentiment Indicator rose to 111.1 in June from 109.2 in the previous month and is now at the highest level since July 2007. Expectations had been for a modest rise in the headline rate, but robust improvements in manufacturing, services and consumer sentiment saw the ESI jumping much more than anticipated. More backing then for the hawks at the ECB, and even Draghi seems to suggest now that with the recovery on track, policy changes may become necessary.

UK Consumer Lending Rose in May

UK consumer lending rose more than expected in May data. Consumer credit lifted GBP 1.7 billion, up from GBP 1.5 billion in April, while mortgage approvals rose to 65.2k form 65.0 k which was upwardly revised from 64.5k, about the median forecast for 64.0k. The BoE has been mooting the risks of rising consumer indebtedness, which this data seems to underscore the central bank’s semi-annual financial stability report this week advised banks to up their counter-cyclical measures, while Governor Carney, during a press conference, advised consumers to do their own individual contingency planning.

Japanese Retail Sales Were Weaker Than Expected

Japanese retail sales were weaker than expected in May climbing 2% year over year according to the Ministry of the Economy. The decline came because of slower sales of durable goods and clothes. Expectations were for an increase of 2.6%.

U.S. Q1 GDP Was Revised Higher

U.S. Q1 GDP growth was revised up to a 1.4% pace in the third look at the data, better than forecast, versus the 1.2% rate in the second release and the 0.7% pace from the Advance report. Personal consumption was bumped up to 1.1% from the prior 0.6% and 0.3% initially. Business fixed investment was nudged down to 11.0% from 11.9%. Government spending was revised up as well to -0.9% from -1.1%. Inventories subtracted $47.0 billion versus -$45.3 billion in the prior report. Net exports added $9.4 billion from $5.1 billion previously. The chain price index was revised down to a 1.9% rate from 2.2% previously and the 2.3% rate from the Advance report. The core price index was revised back down to 2.0% versus 2.1%, and is back where it started in the first report.

U.S. Jobless Claims Edged Higher

U.S. initial jobless claims rose 2k to 244k in the week ended June 24 following the prior week’s 4k increase to 242k which was revised from 241k. That left the 4-week moving average at 242.25k from 245k which was revised from 244.75k. Continuing claims increased 6k to 1,948k in the June 17 week, after the 6k increase previously to 1,942k which was revised from 1,944k.

German HICP Inflation Unexpectedly Rose

German HICP inflation unexpectedly rose to 1.5% year over year from 1.4% year over year in the previous month, with prices up 0.2% month over month. Expectations had been for a deceleration in the headline rate and while sharp dips in Spanish and Italian HICP in June still leave the overall Eurozone number and course to nudge lower, the German data, coupled with the strong ESI reading are a reminder that Draghi may be pledging caution, but that tapering remains on course to start early next year.