EUR/USD Daily Technical Analysis for May 17, 2017

The EUR/USD surged higher and was buoyed by solid growth number and weaker than expected U.S. housing number that weighed on U.S. Treasury yields, putting downward pressure on the greenback. Chain store sales in the U.S. continued to decline which was also a drag on the dollar.  As confidence is rising in Europe, it appears that the ECB is close to removing quantitative easing.

Technicals

The EUR/USD surged higher climbing 0.9%, closing near the 1.1080 level. Prices sliced through a downward sloping trend line that comes in near current support at 1.0990. Additional support is seen near the 10-day moving average at 1.0940.  Target resistance is now seen near the November highs at 1.1299.  Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occur as the spread (the 12-day exponential moving average minus the 26-day exponential moving average) crosses above the 9-day exponential 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.

U.S. Housing Starts Fell in April

U.S. housing starts fell 2.6% to 1.172 million in April, weaker than expected, after a 6.6% March drop to 1.203 million which was revised down from 1.215 million. It’s the slowest pace of starts since November. The volatile multifamily sector paced the weakness, dropping 9.2% from -9.7% which was revised from -7.9%. Single family starts were up 0.4% following the prior 5.1% decline which was revised from -6.2%. Regionally, the Northeast saw a 10.3% drop in starts, with the South down 7.4%, while the West climbed 8.7% with the Midwest 1.0% higher. Building permits slid 2.5% to 1.229 million after climbing 3.4% to 1.260 million in March.

Chain Store Sales Fell in latest week

U.S. chain store sales fell 1.1% in the week ended May 13 after a 0.7% decline previously, and a 0.22% slip in the last week of April. The last time sales posted three consecutive weekly declines was in March. Cooler weather depressed demand for seasonal items, though online sales were also surprisingly soft. On an annual basis, however, sales accelerated to a 1.0% year over year clip versus 0.7% year over year previously.

Eurozone GDP Rose in Q1

Eurozone Q1 GDP growth was confirmed at 0.5% quarter over quarter, in line with the preliminary number and unchanged from Q4 last year. The annual rate fell back to 1.7% from 1.8% in the previous quarter. Developments across the Eurozone remain mixed, with Spanish growth driving Europe with a growth rate of 0.8% quarter over quarter, followed by Germany with 0.6% quarter over quarter growth, French growth at 0.3%, while Italy is trailing with growth of just 0.2%. The still diverging developments are not making Draghi’s job any easier as the central bank is slowly moving towards phasing out its substantial stimulus.

Separately, the trade surplus widened to EUR 23.1 billion, from EUR 18.8 billion in the previous month and bringing the total for the first quarter to EUR 57.3 billion, down from EUR 65.3 billion in the previous quarter.

German Confidence Continues to Rise

The German ZEW investor confidence rose to 20.6, slightly below expectations, but still up from 19.5 in the previous month. the current conditions indicator improved to 83.9 from 80.1 and the overall Eurozone expectations reading rose to 35.1 from 26.3. The ZEW institute said Eurozone economic prospects are generally improving and the data will add to the arguments of the hawks at the ECB. The executive board, however, remains cautious and officials are stressing that they want to see improvements in confidence showing up in real data, before taking the food off the accelerator.

Italian Q1 GDP Growth Edged Higher

Italian Q1 GDP growth remained steady at 0.2% quarter over quarter, unchanged from Q4 last year and bringing the annual rate down to 0.8% year over year from 1.0% year over year in the previous quarter. Confidence indicators have been encouraging, but growth clearly remains disappointing, which is also leaving unemployment at high levels. The failed push to reform the electoral system means the chance that urgently needed structural reforms will be implemented swiftly is slim. At the same time, anti-EU forces are gaining strength and the banking sector remains under pressure.

French April HICP was confirmed at 1.4% year over year, in line with the preliminary number and unchanged from March. The national CPI rate rose to 1.2% year over year from 1.1% year over year. Inflation is trending higher in France as well, but the headline rate is below the Eurozone average and clearly below the ECB’s upper limit for price stability.