The EUR/USD whipsawed surging higher in early trade rising for the 5th consecutive trading session, and testing a 1-month high. The exchange rate was unable to hold on to its gains as the dollar gain traction during a moment of risk aversion. U.S. data was also stronger than expected. Retail sales beat and was revised higher and CPI was hotter than expected, buoying U.S. yields which helped elevated the greenback.
Technicals
The EUR/USD surged to resistance near the October highs at 1.1858. The exchange rate recaptured the 50-day moving average at 1.1786, which is now seen as short term support. Additional support is seen near the 10-day moving average at 1.1663. Momentum on the currency pair has turned positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the MACD line (the 12-day exponential moving average minus the 26-day exponential moving average) crosses above the MACD signal line (the 9-day exponential moving average) of the MACD line.
The Eurozone Trade Surplus Expanded in September
The Eurozone posted a trade surplus of EUR 25.0 billion in September, up from EUR 21 billion in the previous month. Exports widened, while nominal imports declined in September, and the overall improvement in September lifted the total for the third quarter to EUR 64.2 billion, up from EUR 58.9 billion in the previous quarter. This is nominal data, which is impacted by exchange rate and oil price developments, but the numbers still support our view that a pick up in external demand underpinned the 0.6% quarter over quarter overall growth rate in the third quarter.
The ECB’s Hanson increasingly confident on inflation goal
Hansson said the latest policy decision “makes sense”, with short term economic risks to the upside. Another optimistic assessment on inflation and at least short term growth prospects, which explains why the ECB is scaling back net asset purchases, but not necessarily why the ECB continues to pump additional money into the economy and still hasn’t committed to an end date for QE.
French Inflation Edge Higher
French November HICP inflation confirmed at 1.2% year over year, up from 1.1% year over year in the previous month, while the national rate inched to 1.1% year over year from 1.0% year over year. French numbers may have risen slightly in November, against the overall trend in the Eurozone, but they remain below the Eurozone average and far below the ECB’s definition of price stability, thus adding to the arguments of the doves at the ECB, although even BDF head Villeroy seems to be joining the camp of those arguing for a firmer commitment to a final end to net-asset purchases.
U.S. MBA Mortgage Market Index Rose
U.S. MBA mortgage market index rose 3.1% in data released earlier, while the purchase index gained 0.4% and the refinancing index climbed 6.3% for the November 10 week. The 30-year fixed mortgage rate, however, remained unchanged at 4.18% during the relatively quiet week in the wake of the October jobs report miss.
U.S. Retail Sales Were Solid
U.S. retail sales were up 0.2% in October, with the ex-auto figure up 0.1%. The 1.6% headline jump in September was revised up to 1.9%, with the 1.0% ex-auto gain bumped up to 1.2%. Sales excluding autos, gas, and building materials were 0.4% higher, the same as in September. Motor vehicles and parts were up 0.7% versus 4.6% which was revised from 3.6%. Building materials dropped 1.2% from 3.0%. Gas stations declined 1.2% from 6.4%. Foods and beverage sales rose 0.7% after an 0.8% gain. Health and personal care rose 0.8% versus unchanged. Non-store retailers slipped 0.3% lower from 0.6%. Data continue to be impacted by the disasters.
U.S. Inflation Edged Higher
U.S. CPI edged up 0.1% in October with the core rate up 0.2%, exactly as forecast, and follow respective gains of 0.5% and 0.1% in September. The annual pace slowed to 2.0% year over year from 2.2% year over year, with the ex-food and energy component rising to a 1.8% year over year clip versus 1.7% year over year. The internals were mixed. Energy prices declined 1.0% versus the 6.1% jump previously. Transportation was down 0.5% from 2.8%. Commodities slipped 0.2% from 1.1%. And apparel fell 0.1%. Housing rose 0.3% versus 0.2%. Services were up 0.3% as well, from 0.2%. Medical care bounced 0.3% versus -0.1%.