EUR/USD Daily Technical Analysis for May 26, 2017

The EUR/USD moved sideways attempting a move toward resistance near the 1.1265 level, but was unable to gain a foot hold and slide during the North American trading session. Tight jobless claims data released on Thursday was offset by a dovish tone reflected in the FOMC meeting minutes released by the Fed on Wednesday. While expectations declined slightly that the Fed will pull the trigger in June, Fed funds still show a strong likelihood that the Fed will make a move.

Technicals

The EUR/USD continues to form a bull flag pattern, which is a pause that refreshes.  Prices are consolidating below resistance near the November 8 highs at 1.1299.  Support on the currency pair is seen near the 10-day moving average at 1.1132.  Momentum is turning neutral as the MACD histogram is edging lower reflecting decelerating positive momentum. The RSI is also moving lower, from overbought territory and printing a reading of 67, which is in the upper end of the neutral range and reflects consolidation.

Fed Funds Still Point to Rate Hike in June

Fed funds futures rallied on the dovish tilt to the FOMC minutes that indicated Members thought it prudent to see additional data to ensure the recent slowing was temporary, before tightening further. The concomitant decline in implied rates puts the risk of a June hike back around 75%, in the lower end of the recent range, though July still points to an 80% chance. With next month’s decision now more dependent on data, the June 2 employment report will be crucial. Note too that the next retail sales and CPI data are released the morning of June 14, the final day of the FOMC’s 2-day meeting.

Jobless Claims Remain Very Tight

Jobless claims remain tight which means the labor market is healthy. The 1k U.S. initial claims uptick to 234k in the third week of May only slightly trimmed the prior 24k 3-week drop to 233k which was 232k in the BLS survey week from 257k in the week of Easter. Claims remain remarkably tight, and lie just above the 44-year low of 227k in the President’s Day week. Claims have undershot the 2016 average of 263k in every week of 2017. Claims are averaging just 234k in May, versus higher prior averages of 243k in April, 251k in March, 241k in February, 246k in January, and 253k in December. The 233k BLS survey week reading sits below recent survey-week readings of 243k in April, 261k in March, 247k in February and 241k in January.

U.S. Trade Widened in April

U.S. April advance trade report on goods showed the deficit at -$67.6 billion after widening to -$65.1 billion in March which was revised from -$64.2 billion. Goods exports dropped 0.9% following March’s 0.3% slip which was revised from -1.7%. Imports rose 0.7% following the prior 0.1% gain which as revised from -0.7%. Other advance April data showed wholesale inventories dipping 0.3% after a 0.2% gain in March. Retail inventories were up 0.3% as well, after the 0.4% gain previously which was revised from 0.4%.

Healthcare is Still Up in the Air

U.S. Senate Majority Leader McConnell is doubtful on the healthcare bill inherited from the House, which he thinks is unlikely to achieve the 50 votes required to pass. Instead, Senate Republicans are working on a separate approach to healthcare reform that may or may not seek White House input. On the other hand, he sees prospects as “pretty good” for passage of comprehensive tax reform legislation.

UK Q1 GDP Was Revised Lower

UK Q1 GDP data was unexpectedly revised lower in the second estimate, down to 0.2% quarter over quarter growth from the 0.3% reported in the first release. This compares to the 0.7% quarter over quarter growth seen in Q4, and also shows the UK economy to be underperforming the Eurozone’s growth rate of 0.5%. The year over year rage was trimmed to 2.0% from the 2.1% preliminary estimate. The data shows the UK economy has started the year on a weaker than expected footing, and while April PMI survey data tentatively portended a rebound in early Q2, the backdrop of negative household income growth and a May CBI retail sector survey showing a sharp slowing in consumer activity suggests that the UK is set for a relatively rocky path this year. The BoE has been anticipating weakness, having trimmed its 2017 GDP forecast to 1.9% from 2.0% in its quarterly inflation report in early May.