EUR/USD Daily Technical Analysis for October 2, 2017

The EUR/USD edged higher following a slight uptick in Eurozone inflation, which was mixed across European countries.  The German jobless rate also dropped to a record low which helped the currency pair gain traction. Yields in Europe also increased relative to Treasury yields.

Technicals

The EUR/USD moved higher bouncing from support near the weekly lows at 1.1721. Resistance on the EUR/USD is seen near the 10-day moving average at 1.1869.  For the week, the currency pair is down 1.5 big figures. Negative momentum has decelerated as the MACD (moving average convergence divergence) histogram is printing in the red with an upward sloping trajectory which points to consolidation.

Eurozone Inflation was Steady

Eurozone September HICP inflation held steady at 1.5% year over year, unchanged from August. Initial expectations had been for a slight uptick in the headline rate, but after Thursday’s Spanish and German numbers, it was pretty clear that headline rates remained steady. The preliminary breakdown showed energy price inflation actually falling back slightly to a still high 3.9% year over year from 4.0% year over year. Services price inflation also eased slightly – to 1.5% year over year, while prices for industrial goods continue to rise at a very low pace of just 0.5% year over year, which helps to keep the headline rate down. Only food price inflation accelerated. Core inflation actually fell back to 1.1% year over year from 1.2% year over year, which will add to the arguments of the doves at the ECB who seem to want to cut monthly asset purchase levels next year, but without a firm commitment to a final end date for QE.

German September jobless rate at record low

German seasonally adjusted unemployment numbers dropped -23K, more than anticipated and bringing the overall rate down to a record low of 5.6%. A better than expected result that ties with reports from PMI surveys and shows that job creation continues. Wage growth in Germany has been above the Eurozone average, but for the Eurozone it has been surprisingly low considering the rebound in employment since the crisis. This is partly due to structural changes and the reforms implemented since then, which means the jobless number itself won’t spook the ECB into a more decisive reduction in monetary accommodation.

EU unlikely to approve U.K. trade talks in October

European Commission President Juncker said he doesn’t expect a breakthrough on Brexit talks at today’s summit. Lithuania’s Grybauskaite added that Brexit talks are behind schedule after Barnier suggested yesterday that it could take months before the divorce talks can move on to trade, as the fourth round of talks, failed to deliver the breakthrough needed to move on to talks on a trade deal. That makes it unlikely that EU heads of state will clear the way for talks about post-Brexit trade relationships between the U.K. and the rest of the EU at the October summit.

Swiss KOF Leading Indicators Beat Expectations

The Swiss KOF institute’s leading indicator beat expectations, with the headline September reading lifting to 105.8, up from 104.1 in August. The median forecast had been for a more modest increase to 105.4. At 105.8, the indicator is the bets in two months, and takes it back toward cycle high levels. The 4%-odd weakening in the franc since late July is starting to show benefits to the export-oriented Swiss economy.

French Consumer Spending Dropped in August

French consumer spending dropped -0.3% month over month in August, against expectations for another improvement. Like in Germany a disappointing result then, although due to the holidays data over the summer can be volatile and underlying consumption trends still remain quite positive as even the French labor market is improving even if it lags behind developments in neighboring Germany.

French Inflation Edged Higher in September

French September HICP inflation nudged higher to 1.1% year over year from 1.0% year over year in the previous month, as we expected, but a tad above a consensus, which predicted a steady headline rate. At 1.1% year over year, the French number remains far below the ECB’s upper limit for price stability, but also below the Eurozone average, highlighting the ECB’s problem, as inflation differentials remain high even across the four big Eurozone countries. This partly explains the ongoing reluctance to commit to a firm end date for QE just yet, even if monthly asset purchase volumes will almost certainly be tapered further from next year.