EUR/USD Daily Technical Analysis for September 15, 2017

The EUR/USD rebounded from session lows forming a doji day which is where a close is the same level as the open. The ECB’s Jazbec said that tapering was inevitable, which helped buoy the exchange rate despite softer than expected inflation figures from both France and Italy. U.S. CPI was hotter than expected which initially gave the greenback a boost, but a softer than expected decline in jobless claims allowed the currency pair to rise.

Technicals

The EUR/USD rebounded from session lows, but was unable to recapture resistance near the 10-day moving average at 1.1936.  Support is 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 positive to negative territory confirming the sell signal.

ECB’s Jazbec Said Tapering is Inevitable

ECB’s Jazbec said that tapering decision postponed, but “inevitable”. The ECB council member Jazbek told reporters that the ECB needs more evidence before deciding on the future of QE, and that the timing for a decision about reducing QE purchases “has been postponed mainly because the developments are still not confirming the decision which will inevitably follow”, which seems to confirm that the new asset purchase schedule, due to be announced in October, will include another reduction of monthly asset purchase targets.

French HICP Inflation was Unchanged in August

French August HICP inflation was confirmed at 1.0% year over year, unchanged from the preliminary number and up from 0.8% year over year in the previous month. Prices for manufactured products and energy, which fell in July, rebounded again in August, although in an annual comparison prices for manufactured products continued to decline, driven by healthcare products, as well as clothing and shoes. Annual energy price inflation meanwhile jumped back to 4.8% year over year from 1.9% year over year in the previous month, which drove the uptick in the headline rate. Still, the French number remains far below the Eurozone average and the ECB’s upper limit for price stability, with only tobacco and energy related prices showing signs of movement

Italian Inflation Edged Higher

Italian HICP inflation was confirmed at 1.4% year over year, in line with the preliminary number and up from 1.2% year over year in the previous month. The national rate rose to 1.2% year over year from just 1.1% year over year, with energy prices a main driving factor. Still, core HICP inflation stood at 1.1%, up from 0.8% in July as services price inflation accelerated. The Italian HICP rate remains far below the ECB’s definition of price stability and compared to the 2.0% year over year rate in Spain, the data highlights that ECB’s problem amid ongoing cross-country divergence in developments, which are making the central bank’s life not any easier as officials prepare to take the foot off the accelerator.

U.S. CPI was Stronger than Expected

U.S. CPI rose 0.4% in August, with the core rate increasing 0.2%, a little hotter than expected. There were no revisions to July data that showed gains of 0.1% for both rates. The annual pace accelerated to 1.9% year over year for the headline, versus July’s 1.7%, while the ex-food and energy component was steady at 1.7% year over year. Energy prices surged 2.8% thanks to Harvey, following the 0.1% July dip, and is the first increase since April. Transportation was up 1.4%, rebounding from -0.1%. Services costs rose 0.3%. Housing jumped 0.4%, with the owners’ equivalent rent measure at 0.3%. Food and beverage prices edged up 0.1%, as did apparel prices. Commodities climbed 0.5%. While the strength in inflation has important implications for the FOMC, hurricane distortions will make the data difficult to judge.

Jobless Claims Dropped

The 14k U.S. initial claims drop to 284k in the second week of September was the lull between the storms, following the 62k Harvey-surge to 298k last week, and an assumed pop in the BLS survey week to an assumed 310k with Irma. The dual hurricane’s look poised to prompt a string of lofty claims readings before a likely sharp drop-back into Q4. The 62k spike with hurricane Harvey, which included a 52k surge in Texas, compares with prior first-week spikes of 96k with Katrina, 34k with Ike, 25k with Rita, and 22k with Isaac. The spike will look smaller with Irma given that we are still unwinding the Harvey spike, and our estimate implies a pop of “just” 26k despite a likely 50k-100k lift from Florida.