EUR/USD Daily Technical Analysis for October 20, 2017

The EUR/USD moved higher as German growth is expected to increase, and despite a standoff that continue to suspend Catalonia’s autonomy.  The ECB’s Nowotny said there is a good argument to reduce asset purchases which helped buoy the European currency. A larger than expected decline in jobless claims failed to buoy the greenback.

Technicals

The EUR/USD moved higher but was unable to recapture resistance near a downward sloping trend line that comes in near 1.1845.  Support on the currency pair is seen near the 10-day moving average at 1.1797.  Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal, but the choppy nature of the MACD histogram brings the change in doubt.

German DIHK Lifts Growth Forecast

German DIHK lifts growth forecast to 2.0% from 1.8%. The German Chambers of Industry and Trade lifted its growth forecast after an upbeat members survey, which showed marked improvement in the assessment of current business compared to the last survey in May. The reading for expected business going ahead, fell back slightly, but to 14 from 16, but still remains firmly in positive territory, with the DIHK reporting that concerns about falling export demand has eased considerably. Based on this the DIHK expects growth to accelerate further to 2.2% next year.

Span to Take Control of Catalonia

Spain to move to take control in Catalonia and suspend Catalonia’s autonomy, which also suspends the power of the Catalan government, after Regional President Puigdemont refused the claim to independence, saying that independence is merely suspended to allow talks with Madrid. The central government in Madrid then declared that it “will continue with the procedures set out in Article 155 of the Constitution to restore the legality of self-rule in Catalonia”.

ECB’s Nowotny said there is a good argument for a reduction of purchases

The Austrian central bank head repeated that the bank can’t stop purchases abruptly, but added that it would be a mistake to wait to long on QE changes and that officials must decide on the future of the asset purchase program in October. Nowotny admitted that inflation will remain below 2% this year and may even be lower next year, but also said that the ECB can normalize policy, before the headline rate is back at 1.9%, i.e. below but close to 2%. That purchase volumes will be scaled back from the currently EUR 60 bln next year is pretty clear and Nowotny didn’t go into the size of the reduction or the length of the new program. Markets are positioning for less for longer, after a recent source story

U.S. Jobless Claims Tumbled

The 22k U.S. initial claims plunge to a 44-year low of 222k in the BLS survey week extended the prior 14k drop to 244k, hence more than reversing the September boost from hurricanes, and with little apparent impact from hurricane Nate and the California fires. There was a 2k claims drop in Texas and no change in California. We expect tight claims readings into year-end from rebuild effects. Claims are averaging just 233k thus far in October, which is below the 269k hurricane-boosted September average, but also below prior averages of 246k in August, 242k in July, and 243k in June. The 222k BLS survey week reading followed a hurricane-lifted 260k BLS survey week reading in September, and prior readings of 232k in August, 234k in July, and 242k in June.

U.S. Philly Fed index rose 4.1 points to 27.9 in October following the 4.9 increase to 23.8 in September. That’s almost triple the 11.1 print from a year ago. The employment component surged to 30.6 following the 3.5 point dip to 6.6, with the workweek at 19.4 from the 6.9 tick slip to 11.9. New orders slid to 19.6 after jumping 9.1 points to 29.5 previously. Prices paid rose to 38.1 following the 13.3 climb to 34.4 in September, while prices received fell to 14.2 from 22.8. The 6-month general business activity index declined to 46.4 following the 12.9 climb to 55.2, with the future employment gauge at 38.7 from 30.1, new orders at 43.7 from 56.9, prices paid at 60.2 from 46.2, and prices received at 41.1 from 31.7. The 6-month capital expenditures index slipped to 37.7 from 39.0.