EUR/USD Daily Technical Analysis for October 11, 2017

The EUR/USD moved higher on stronger than expected trade data, which pushed European yields higher relative to their U.S. counterparts.  The yield differential weakened, as traders attempt to determine whether the ECB will tightening policy by agreeing to terminate their bond purchase program on the scheduled date in March 2018.  Additionally, the market seems to have baked in a Fed tightening in December, but if the hurricane displacement of jobs continues into the Q4, it will be difficult for the Fed to pull the trigger. The German trade surplus widened as exports increased, which reflects stronger growth for an export led country.

Technicals

The EUR/USD moved higher, recapturing resistance which is now current support near the 10-day moving average at 1.1755.  Resistance is seen near the 50-day moving average at 1,1845. Negative momentum is decelerating as the MACD (moving average convergence divergence) index prints in the black, but the MACD histogram has a upward sloping trajectory which reflects consolidation. The RSI moved higher in tandem with prices action reflecting some accelerating positive momentum, but the current print of 50, which is in the middle of the neutral range reflects consolidation.

The German Trade Surplus Widened

The German trade surplus widens as exports jump. Germany reported a trade surplus of EUR 21.6 billion, up from EUR 19.3 billion in the previous month, as exports jumped 3.1% month over month, while import growth slowed down to 1.2% month over month. Unadjusted data show a surplus of 20 billion Euros in August, up from EUR 19.6 billion in August last year, bringing the total for the first eight months to EUR 160.7, down from EUR 167.0 billion in the corresponding period last year. Exports were up 6.5 year over year over that period, import growth was even stronger though at 9.2% year over year. The rebound in month over month export growth in August is encouraging, but the Jul/Aug pattern in both trade and production numbers suggest that the timing of the school holidays has somewhat impacted data over the summer, which means the strong August data may overstate real developments.

Solid UK Data Lifted the Entire European Block

UK BRC September retail sales beat forecasts in rising 1.9% year over year in the headline same-store measure, up from 1.3% year over year growth in the month prior. Higher food and clothes prices drove the gain, along with back-to-school purchases. The survey found that consumers were tending to focus on buying essentials and less on big ticket items. So, overall, the robust headline disguises a less encouraging picture, with consumer spending power being eroded as wage demands failing to keep up with inflation which is running at 2.9% year over year.

UK August production data beat forecasts, the industrial output rising 0.2% month over month and 1.6% year over year, unchanged and up from 0.4% growth in the respective month over month and year over year comparisons from the month prior. The median forecasts had been for 0.2% month over month and 0.9% year over year. The narrower manufacturing production gauge showed growth of 0.4% month over month and 2.8% year over year, versus 0.5% month over month and 1.9% year over year growth figures in the month previous. The median forecasts had been for more modest growth of 0.2% month over month. The upward surprise in production was offset by worse than expected trade figures. The overall UK trade deficit blow out to GBP 5.6 billion, much worse than the median forecast for a GBP 2.8 billion deficit.

Moderate Growth Should Be Reported by the Fed

The Federal Reserve Policy Minutes to the September 19, 20 policy meeting which is scheduled to be released Wednesday will provide some further details to the Fed’s thinking. After the policy statement, the economic projections, and Yellen’s press conference last month, as well as recent Fedspeak and data, the markets have all they need to in order to fine tune outlooks that are currently pricing in a December rate hike. Of course, the Fed left policy on hold in September, as expected, and left the door open for December, which they’re more than likely to go through. The dot plot maintained the view of three more tightenings in 2018. Data since the September 19, 20 meeting should have reinforced the Fed’s expectation for moderate growth.