EUR/USD Daily Technical Analysis for September 22, 2017

The EUR/USD rebounded slightly on Thursday following a solid decline on Wednesday following the Fed’s decision to begin QT. The Fed announced its balance sheet runoff which will begin in October and left interest rates unchanged. Though FOMC participants looked past the near-term disruption effects of the 3-category-4 hurricanes that have hit the U.S., they did predict a temporary inflation boost from higher prices on gasoline and the like. A December hike remains on the table, along with three follow-ups next year, if the implementation of balance sheet reduction goes according to plan. The ECB economic bulletin reported the need for ongoing monetary support. The Norges Bank left rates unchanged as did the BoJ. Jobless claims declined while the Philly Fed survey came in stronger than expected.

Technicals

The EUR/USD rebounded on Thursday following a solid decline on Wednesday following the Fed’s decision to begin QT. Support on the currency pair is seen near the 50-day moving average at 1,1808.  Resistance is seen near last week’s highs at 1.2092.  Momentum on the currency pair is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices.

ECB’s Economic Bulletin Sees More Monetary Support

ECB economic bulletin repeats need for ongoing monetary support. The editorial of the central bank’s economic bulletin is as usual pretty much a repeat of Draghi’s introductory statement at the last ECB meeting, saying that while the economic expansion “continues to be solid and broad across countries and sectors”, the “exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability”. It concludes that “a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term”.

The Norges Bank Left Policy Unchanged

The Norges Bank left policy unchanged, as had been widely expected, leaving the policy rate at 0.5%. In its statement, the central bank said that “there is a continued needed for an expansionary monetary policy, capacity utilisation in the Norwegian economy is below a normal level, and the outlook suggests that inflation will remain below 2.5% in the coming years.” The Norges Bank in its quarterly Monetary Policy Report forecast that the key policy rate will remain at 0.5% over the coming year, rising gradually thereafter, a prognosis that is little changed from the June Report, although a little higher towards the end of the forecast period.

Jobless Claims Dropped

The 23k U.S. initial claims drop to 259k defied Irma to leave a restrained reading in the BLS survey week that extended the 16k drop to 282k after the 62k Harvey-surge to 298k at the start of September. Displacement of individuals and loss of electrical power may have delayed applications, leaving risk of a pop next week, and we will assume a 280k figure. There are now 23k claims drop with Irma, following a 62k spike with hurricane Harvey that included a 52k surge in Texas that was followed with a 24k drop. These compare to prior first-week spikes of 96k with Katrina, 34k with Ike, 25k with Rita, and 22k with Isaac. State claims data are released with a one-week lag, though Irma prompted a claims rise of 2k from a more typical 0.3k in Puerto Rico.  There was a 5k claims rise in Florida in the week before Irma. Claims are averaging 274k thus far in September and we expect a 272k average when the month is over, versus prior averages of 246k in August, and 242k in July.

U.S. Philly Fed Rose

U.S. September Philly Fed manufacturing index rose 4.9 points to 23.8, better than forecast, following the 0.6 point dip to 18.9 in August. After surging 19.7 points to a 33-year high of 43.3 in February, the index had fallen in five of the last seven months. The components were mixed. The employment component dipped to 6.6 from 10.1, and is a little less than half of the 13.5 six-month average. The workweek slid to 11.9 from 18.8, and compares to the 15.9 average. New orders rose to 29.5 from 20.4. Prices paid jumped to 34.4 from 21.1, with prices received at 22.8 from 13.5. The 6-month general business activity index climbed to 55.2 from 42.3 and is the best since March. The future employment index was dipped to 30.1 from 33.1, with new orders at 56.9 from 49.1, capital expenditures at 39.0 from 39.2, with prices paid at 46.2 from 34.8, and prices received at 31.7 from 40.4.