EUR/USD Daily Technical Analysis for September 14, 2017

The EUR/USD moved lower as relatively tame inflation figures will likely keep the ECB on hold, and continue to keep their quantitative easing program intact. Eurozone Industrial production was in line with expectations, while the mortgage market in the U.S. picked up rapidly as yields moved lower.  Wholesale price inflation was softer than expected, but higher gasoline prices should continue to support the greenback.

Technicals

The EUR/USD moved lower pushing through support levels near the 10-day moving average, which is now seen as short-term resistance at 1.1937.  Target support levels are seen near the August lows at 1.1661.  Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from negative to positive territory confirming the sell signal.

Spanish Inflation Confirmed at 2%

Spanish August HICP inflation confirmed at 2.0% year over year, in line with the preliminary number and up from 1.7% year over year in July. The uptick brings the headline rate in line with the ECB’s upper limit for price stability, but with the Eurozone average still lower, the numbers only highlight the problem of ongoing inflation disparities that the ECB is facing.

German Inflation Edged Higher

German August HICP inflation was confirmed at 1.8% year over year, in line with the preliminary number and up from 1.5% year over year in the previous month. The breakdown confirmed that a renewed pick up in energy prices was largely to blame for the uptick in the headline rate, with prices for heating out rising 10.4% year over year in August, compared to just 5.4% year over year in July and 0.9% year over year in June. Petrol price inflation equally jumped higher. Energy aside annual food price inflation, as well as higher prices for clothing and shoes, underpinned the uptick in the HICP rate, which leaves the German number pretty much in line with the ECB’s definition of price stability. For the Eurozone as a whole though price developments are still looking more muted and with the strong EUR adding to downward pressure on prices the ECB remains very cautious as it prepares for another reduction in monthly asset purchase volumes.

Eurozone IP Rose in July

Eurozone industrial production rose 0.1% month over month in July, in line with the consensus forecast. The modest uptick over the month lifted the annual rate to a strong 3.2% year over year from 2.8% year over year in the previous month. Manufacturing PMIs were relatively weak in July, but improved again in August and holiday timings may have contributed to the weakness in July, although the annual rate at 3.2% year over year already confirms that the recovery continues to strengthen in Q3.

The U.S. Mortgage Market Surged

U.S. MBA mortgage market index surged 9.9% in data released earlier, in addition to a 10.9% jump in the purchase index and a 8.9% gain in the refinancing index for the week ended September 8. The average 30-year fixed mortgage rate sank another 3 basis points to 4.03% in the holiday shortened week as the perfect storm of N. Korean threats and record Hurricane Irma winds sent yields down to post-election lows. Accordingly, Fed rate hike forecasts for the balance of the year were virtually washed out, though downgrades on both of those fronts since the weekend has seen yields rebound from lows, which should cool mortgage activity this week in addition to the storm disruptions in Texas and Florida.

August PPI Was Softer than Expected

The 0.2% August U.S. PPI headline rise with a 0.1% core price increase undershot estimates thanks to a lean 0.1% service price increase, with a flat trade service figure and a 0.3% gain for transportation and warehousing services. There was largely an expected figure for goods prices, with a 3.3% energy price rise and a 1.3% food price drop that left a 0.5% rise for the goods component overall. On the old SOP basis there was a 0.5% headline PPI rise after a 0.2% July drop but a 0.2% June increase. There might be a hurricane-led 0.4% PPI rise in September with a 0.2% core price increase thanks to a pop in gasoline prices and an assumed rise in service prices. The year over year PPI rise should climb to 2.5%, after rising to 2.4% in August from 1.9% in July, while the year over year core PPI rises to 2.1% from 2.0% in August and 1.8% in July.