EUR/USD Daily Technical Analysis for October 19, 2017

The EUR/USD rebounded from session lows, as a softer than expected U.S. Housing Starts figure was offset by softer than expected Eurozone Construction output.  Draghi was on the tap saying that economic reform was necessary for Europe while the minutes from the Fed Discount meeting in August showed that 11 of 12 members wanted rates to remain unchanged.

Technicals

The EUR/USD currency pair rebounded from its lows forming a doji day which is where the open and close are at the same level reflecting consolidation.  Prices are hovering near the 10-day moving average which is acting as a magnet.  Resistance is seen near the October highs at 1.1880, while support is seen near the October lows at 1.1662. Momentum is neutral as the MACD (moving average convergence divergence) index prints near the zero index level and has a flat trajectory which points to consolidation.

Eurozone Construction Output Declined in August

Eurozone construction output fell -0.2% month over month in August, bringing the annual rate down to 1.6% year over year from a revised 2.8% year over year in the previous month. Variations over the summer are partly due to variations in holiday timings, so the monthly correction doesn’t mean the recovery is stalling.

ECB’s Draghi urges economic reforms again

The central bank president once again stressed that “with monetary policy being accommodative, we now have a window of opportunity to take these measures”, stressing that “we need to show that reforms can contribute to both efficiency and equity”, and that “vested interests have to be tackled and those who have lost out given proper support”. At the same time he seemed to rebuff critics arguing that the low interest rate environment reduces market pressure on governments to implement reforms, saying that ECB research “finds no convincing evidence that high interest rates lead to more reforms, if one controls for the business cycle and other factors” and that “in fact the opposite is more likely to be true”.

UK Household Earnings Beat Expectations

UK household earnings data beat expectations slightly, with the bonus-included figure rising 2.2% year over year in the three months to August. The median forecast had been for an unchanged rate of 2.1% year over year. The ex-bonus figure rose to a 2.1% year over year clip, up on the median forecast for 2.0%, while the July figure was revised upwards to a rate of 2.2% year over year from 2.1%. The ONS stats office highlighted that inflation-adjusted household incomes are down 0.4% from a year ago in the ex-bonus measure. Employment growth remained strong, however, and job vacancies were up 3k in Q2 at a near record level 783k.

ECB QE program passed another German court challenge

Germany’s constitutional court rebuffed demands to immediately stop the Bundesbank from participating in the ECB’s asset purchases program. This is not a final ruling however, just a decision on a request by the plaintiffs to stop the Bundesbank from participating in the program before the case has been fully resolved. The court argued that “because of the high volume of purchases by the Bundesbank, disrupting bond purchases would endanger or even thwart the program’s goal to raise inflation to about 2 percent”, adding that “granting the interim bid now would be more than just conserving the status quo, it would be identical with granting the lawsuit”.

Fed discount rate meeting minutes

Showed that 11 of 12 Banks voted for an unchanged primary credit rate of 1.75% in September, with Kansas City the one calling for a hike to 2%. Back at the August 28 meeting, all 12 agreed to a steady 1.75% rate. The KC Bank is headed by George, who is one of the more hawkish on the FOMC (. Bank directors generally remained positive on the prospects for economic growth, though there was variance across the 12 Districts. Many directors noted the hardships and disruptions in the areas hit by the hurricanes, but didn’t expect long-term impacts. Labor markets remained tight with wage pressures moderate. The KC Fed “favored” a tightening due to the growing economy, tight labor markets, and an expected increase in inflation

U.S. Housing Starts Tumbled in September

U.S. housing starts plunged 4.7% to 1.127 million in September after falling 0.2% to 1.183 million in August which was revised from 1.180 million. Single family starts dropped 4.6% to 0.829 million after the prior 3.3% increase which was revised from 1.6%, with multifamily diving 5.1% to 0.298 million from -8.7% which was revised from 6.5%. The weather played a big part in the weakness. Regionally, there was a 20.2% drop in the Midwest, a 15.3% decline in the south, a 9.2% slide in the Northeast, and a 15.7% gain in the West. Permits declined 4.5% to 1.215 million following August’s 3.4% gains to 1.272 million which was revised from 1.300 million.