EUR/USD Daily Technical Analysis for November 3, 2017

The EUR/USD edged higher on Thursday, trading in a tight range, following Wednesday Fed decision and ahead of Friday’s U.S. payroll report.  Eurozone Manufacturing PMI data was revised lower, while the German jobless rate dropped. The Bank of England increased interest rates, but left QE unchanged. U.S. initial claims declined while productivity increased.

Technicals

The EUR/USD continued to form a bear flag pattern which is a pause that refreshes lower. This comes following a head and shoulder reversal pattern which signals the end of the up move in the EUR/USD exchange rate.  Resistance is the former neckline near 1.1690.  Support is seen near the 1.1600 handle. Momentum on the currency pair is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to a lower exchange rate.

Eurozone Manufacturing PMI Was Revised Lower

The Eurozone October manufacturing PMI was revised slightly down to 58.5 from 58.6 reported initially, but still up from 58.1 in September. Survey compiler Markit reported that strong new orders inflows are testing capacity and are prompting record jobs growth. Differences across countries remain, but all nations covered in the survey reported increases in output, as well as new orders and employment.

German Jobless Number Dropped

German jobless numbers dropped a further -11K in October, leaving the seasonally adjusted unemployment rate unchanged at a very low 5.6%. The German economy continues to power ahead and the labor market is looking very tight, even though wider measures of unemployment, which the ECB is starting to concentrate on, are still much higher. Nevertheless, Germany doesn’t have the same problem with extremely high youth unemployment rates as countries like Spain and wages are also rising faster than the Eurozone average, with sizeable wage demands on the agenda for the next wage round.

UK Construction PMI Rose

UK October construction PMI survey much better than forecast, albeit on the back of a much worse than expected outcome in the previous month. The headline reading for the October survey lifted to 50.8, indicating that the sector is back in expansion, although marginally so, after tipping to 48.1 in September. The median forecast had been for a 48.5 outcome. This makes it two out of two forecast-beating results in the three main PMI surveys out of the UK.

Challenger Saw Layoffs Falling

U.S. Challenger reported announced layoffs fell 2.5k to 29.8k in October following September’s 1.5k decline to 32.3k. Reductions were led by the healthcare sector, which announced 6.4k cuts. On a 12-month basis, planned job cuts are down 3.0% year over year versus -27.0% year over year previously. Holiday hiring announcements total 549k for the year through October, versus 605k for the same period last year.

Jobless Claims Dropped

The 5k U.S. initial claims drop to a lean 229k in the final week of October trimmed the 11k rise to 234k from a 44-year low of 223k in the BLS survey week. Claims have more than unwound the September hurricane boost to leave remarkably tight levels, which will probably extend into year-end thanks to rebuilding activity and an improved economic backdrop. Claims are averaging just 233k in October, which is below the 269k hurricane-boosted September average, but also well below prior averages of 246k in August and 242k in July. The 223k BLS survey week reading followed a hurricane-lifted 260k BLS survey week reading in September, and prior readings of 232k in August and 234k in July. Payrolls face upside risk on Friday. Vehicle sales sustained a robust 18.0 million clip in October after the September spike to an 18.5 million cycle high, and the vehicle assembly rate is likely climbing.

U.S. Productivity Surged

U.S. productivity growth climbed 3.0% in Q3, with unit labor costs up 0.5%. Productivity doubled the Q2 rate of 1.5%, and is well above the 0.1% clip from Q1. It’s the fastest rate since Q3 2014. Output slowed slightly to a 3.8% from 3.9% previously which was revised from 4.0%. Employee hours slid to 0.8% from 2.4% which was revised from 2.5%. Compensation per hour rose to a 3.5% rate from 1.8%. The price deflator was 2.1% versus 0.6%. Real compensation was weakened to 1.5% from 2.1%. Compared to Q3 last year, productivity is at a 1.5% year over year pace versus the 1.3% year over year clip from Q2.