EUR/USD Daily Technical Analysis for October 17, 2017

The EUR/USD was nearly unchanged as a strong than expected Eurozone Trade Surplus was offset by a 8-year high on the Empire Manufacturing Index.  The ECB says there is no agreement yet on a QE extension, while other ECB officials are opining on a Euro taper tantrum similar to the Fed tantrum when easing was curtailed.

Technicals

The EUR/USD formed a doji day which is a close and open at the same level which reflects indecision.  The exchange rate was able to hold above support near the 10-day moving average at 1.1808.  Resistance is seen near last weeks highs at 1.1869.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory which reflects consolidation.

The Eurozone Post A Trade Surplus

The Eurozone posted a trade surplus of EUR 21.6 billion in August, up from EUR 17.9 billion in the previous month, as export growth outstripped import growth. The unadjusted surplus amounted to EUR 16.1 billion, bringing the total for the year to date to EUR 145.3 billion, down from EUR 172.2 billion in the first eight months last year. This is nominal data, impacted by oil prices and exchange rate developments, but still the numbers highlight that overall this is a recovery led by domestic demand and consumption, rather than external growth.

ECB says there is no agreement on QE extension yet

ECB says there is no agreement on QE extension yet. While last week’s source story suggested that the ECB is discussing a 9 months QE extension at EUR 30 billion per month, i.e. a total of EUR 270 billion, a report today suggest that at least some council members see room for less than EUR 200 billion additional asset purchases. That could mean a 6 months rather than a 9 months extension at EUR 30 billion, which would bring the total of additional purchases to EUR 180 billion.

Empire State Rose to 8-Year High

The Empire State headline rose to an 8-year high of 30.2 that was also seen in September of 2014, from 24.4 in September, 25.2 in August and just 9.8 in July. The ISM-adjusted Empire State fell to a still-solid 54.9 from a 6-year high of 57.0 in September but a lower 54.2 in August and 53.3 in July. The producer sentiment surveys have risen sharply with the hurricane rebuild from already high levels, after showing little of the expected summer moderation from lofty peaks at the start of 2017. The rebuild-boost from Harvey, Irma, Nate and the California fires should extend into year-end.

ECB’s Nowotny doesn’t see risk of taper tantrum in Europe. The Austrian central bank head said markets are prepared for policy normalisation and that he doesn’t see the risk of a taper tantrum in the Eurozone. At the same time Executive Board member Constancio called for a more flexible interpretation of inflation goals, adding that while the recovery has beat expectations global reflation hasn’t happened yet. Nowotny said a lot of discussions are needed on the volume of QE going ahead and that it is too early to give details on QE plans.

Catalonia Refuses to Back Down

Faced with an ultimatum from Rajoy to clarify whether the autonomous region declared independence accept the Spanish constitution, Catalonia’s President Puigdemont defended the region’s claim to independence and once again called for dialogue. In a letter to Rajoy Puigdemont insisted that the illegal referendum from October 1 gave his government “a democratic mandate to declare independence”. The letter was once again pretty vague on whether independence had been declared or now and fell short of what Rajoy was expecting, which could see the central administration in Madrid taking steps to take over direct control in Catalonia.

Austria moves to the right in general election

The centre-right OeVP won yesterday’s general election, but the right wing FPOe gained and came second, which will likely see it becoming junior coalition partner in a OeVP led coalition. However, this is not the first time, that the FPOe will enter a government and unlike in Germany where the AfD is a new party on the political landscape the FPOe has long been part of Austria’s political life. Furthermore the OeVP has made a pro-EU stance a condition for a cooperation, although with the prospect of the FDP entering government in Germany and the new administration in Austria the chance for Macron’s and Juncker’s plans for more centralized decision making are fading quickly.