EUR/USD Daily Technical Analysis for October 12, 2017

The EUR/USD moved higher bumping up against resistance levels, as yield in the Eurozone outpaced their U.S. treasury counterparts.  The ECB’s Visco welcomes gradual policy normalization which helped buoy the currency pair. The U.S. MBA mortgage market index declined in the latest week, but this news was offset by hawkish comments from the Fed’s Evans.

Technicals

The EUR/USD moved higher testing resistance near the 50-day moving average at 1.1845.  Support on the EUR/USD is seen near the 10-day moving average at 1.1766. Momentum on the exchange rate has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the index (the 12-day moving average minus the 26-day moving average) crosses above the signal line (which is the nine-day moving average of the spread). The index moved from negative to positive territory which confirms the buy signal. The MACD histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate.

Catalonia Backs Off

Puidgemont rather than unilaterally declaring independence, proposed to suspend the result of the referendum and called for weeks of dialogue. Spain’s central administration had braced itself for a direct conflict, so this is at least a partial victory as Puidgemont seemed to back down first in this game of chicken. Still, with Catalonia suspending the result, rather than fully ignoring it Rajoy will likely still see this as blackmail and it remains to be seen whether he will now take a softer stance or continue to demand a full capitulation from the independent region.

ECB’s Visco would welcome gradual policy normalization.

The Bank of Italy Governor said in an interview that the “start of a gradual process of monetary normalization would be welcome news”, as “it would signal the materialization of sizable and self-sustained improvement in inflation and economic activity”. He added that the “economic recovery in the euro area is gaining momentum and becoming more widespread across member countries”, and that even in Italy the normalization process as “well as the gradual return to higher interest rates, should not be a cause for concern. provided that all the actors involved deliver the required pickup in productivity, while aiming at financial stability”.

ECB’s Smets said that policy calibration to be gradual and cautious.

The governing council member said that while the Eurozone economy is “behaving better”, the ECB’s latest assessment “was clear that inflation still needs to be supported by monetary policy”. He added that “when there is more uncertainty, you would probably see more merits from a higher” pace of monthly asset purchases, and that he expects policy recalibration to be “gradual and cautious”.

The Fed’s Evans Say Fundamental are Strong

Chicago Fed dove Evans said U.S. fundamentals are really very strong and he suspects the wage story is improving, though he wonders whether a little more accommodation is needed to get to the 2% inflation target by 2019. He believes there’s room for honest discussion later this year whether it’s the right time to raise rates and advocates gradual policy increases as the Fed assesses progress towards 2% inflation. Speaking from Zurich, Evans seems to have climbed down off his dovish perch a bit, but remains cautious on achieving and maintaining the 2% inflation rate.

U.S. MBA mortgage market index sank

U.S. MBA mortgage market index sank 2.1% in data released earlier, along with a 0.1% decline in the purchase index and a 4.2% drop in the refinancing index. The average 30-year fixed mortgage rate rose 4 basis points to 4.16% for the week ended October 6. The rise in rates came in the wake of the Fed quantitative tightening move in late September and heading into the storm-damaged payrolls report, which was relatively strong beneath the headlines. The housing sector remains somewhat in limbo after the hurricanes, though overall has been relatively underpinned as the Fed mulls its options for a resumption of rate hikes in December.

Trump doesn’t think tax legislation will be affected by his dispute with Tennessee Republican Senator Bob Corker and he plans to adjust the tax plan over the next few weeks to make it stronger, according to headlines (not Twitter). Politico.com had multiple articles that tax cuts could be DOA without support from Corker and Rand Paul (who votes against everything). Trump said that the people of the country want to see tax reform/cuts go through and bring back $3 tln in offshore funds. He confirmed that he will introduce a healthcare plan transferable across state lines that will aide those hurt by Obamacare, that “won’t cost the government a penny.” He also said he didn’t undermine Secretary of State Tillerson with his tweet about an IQ test.