The EUR/USD reversed course on Thursday following a stronger than expected U.S. PPI report. Jobless claims also moved lower as job losses that occurred following the multiple hurricanes in the United States. Eurozone Industrial production was stronger than expected while French Inflation was confirmed.
The EUR/USD initially moved higher but ran into resistance near a downward sloping trend line near 1.1915. Support is seen near the 10-day moving average at 1.1772. Momentum on the currency pair has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD index (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD index. The MACD histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate.
Eurozone Industrial Production was Higher than Expected
Eurozone industrial production higher than anticipated in August. Production jumped 1.4% month over month, and with July revised up to 0.3% month over month from 0.1%, the annual rate lifted to a very strong 3.8% year over year from 3.6% year over year in the previous month. Variations over the summer are partly due to the timing of school holidays, but the strong annual rate over both months ties in with the signals from survey data that show ongoing robust growth over the summer. More arguments then for the hawkish camp at the ECB, although with political risks and uncertainties still hanging over the union there doesn’t seem to be a majority in favor of a firm commitment to an end date for QE just yet.
French Inflation was Confirmed
French September HICP inflation was confirmed at 1.1% year over year, as expected, up from 1.0% year over year in the previous month, despite the fact that prices fell -0.2% month over month. Food price inflation as well as energy price inflation accelerated, but with services price inflation falling back and prices for manufactured goods falling -0.5% year over year, the annual rate remains below the Eurozone average and far below the ECB’s upper limit for price stability.
U.S. Wholesale Prices Climbed in September
U.S. headline PPI climbed 0.4% in September, with the core up 0.4% as well, with the latter a little hotter than forecast. There were no revisions to August data that showed a 0.2% overall rise, with the ex-food and energy component up 0.1%. The annual pace rose to a 2.6% year over year clip versus 2.4% year over year previously, with the core at 2.2% year over year versus 2.0% year over year. For some details, goods prices increased 0.7% versus 0.5% in August, led by energy which climbed 3.4% compared to 3.3% previously, while food prices were unchanged from -1.3%. Services prices edged up 0.4% from 0.1%, paced by transportation/warehousing which rose 1.0% following the prior 0.3% gain, while trade was up 0.8% versus unchanged previously.
Jobless Claims Dropped
U.S. initial jobless claims dropped 15k to 243k in the October 7 week following the 11k drop to 258k in the September 30 week which was revised from 260k. The market is continuing to adjust to the swings from the hurricanes and the BLS said two states and one territory estimated their numbers. The 4-week moving average slipped to 257.5k, versus 267k which was revised from 268.25k. Continuing claims declined 32k to 1,889k in the September 30 week, following the prior 10k rise to 1,921k which was revised from 1,938k.
Minutes were Somewhat Dovish
FOMC minutes showed “many” saw another rate hike was warranted, while a smaller number thought action could wait. Several thought that further tightening should hinge on incoming data, though it was acknowledged that Hurricanes Harvey, Irma, and Maria would impact economic activity. There was active debate over inflation and wages. While many saw some of the softening in inflation as due to idiosyncratic factors, other factors could be at work too and there was concern that such influences could be more persistent. Also, “several expressed concern that the persistence of low rates of inflation might imply that the underlying trend was running below 2%.” Also, “a few others pointed out the need to consider the lags in the response of inflation to tightening resource utilization and, thus, increasing upside risks to inflation.” Concurrently, most noted the subdued nature of wages. Though there was a lot of discussion over low inflation and the various implications of that, we still believe the minutes are consistent with a December tightening