EUR/USD Daily Technical Analysis for September 27, 2017

The EUR/USD tumbled during the European trading session, but rebounded late during the U.S. session, as the dollar lost ground following a softer than expected new home sales report.  The Feds Yellen gave a speech on Tuesday, and it appears that the Fed still has concerns about inflation. Yellen said that inflation could be lower than forecast which means that monetary policy could be lower for a longer period than initially expected.

Technicals

The EUR/USD slid through support near the 50-day moving average which is now seen as short term support near 1.1832.  Target support on the currency pair is seen near the August lows at 1.1663.  Additional resistance is seen near the 10-day moving average at 1.1913.  Momentum on the currency pair is negative as the MACD (moving average convergence divergence) histogram is printing in the red with a downward sloping trajectory which points to a lower exchange rate.

French Business Confidence was Mixed

French business confidence mixed, with the manufacturing confidence reading unexpectedly falling back to 110 from 111, but the production outlook reading actually improving to 23 from 20. Services confidence meanwhile improved to 108 from 107 in August, as expected demand and the reading for the business situation improved. The price indicator in the services survey also turned much less negative. Overall then still a solid reading, even if, like in Germany, the national surveys turn out less optimistic than the latest PMI numbers.

German Import Price Inflation Ticked Higher

German Import price inflation ticked higher in August, with the headline rising to 2.1% year over year from 1.9% year over year, as prices for energy goods jumped 1.7% month over month and 9.4 year over year. Excluding energy, the annual rate steady at a low 1.4% year over year. The strong EUR clearly is helping to keep the overall rate down and despite the uptick in energy prices, annual rates look much lower than the 6.1% year over year in April.

Fed’s Evans remains concerned over still low inflation expectations in his comments on monetary policy and the economy. This FOMC voter has been worried in recent months over the slowing in price pressures. He needs to see clearer signs of higher inflation before boosting rates again. And he doesn’t see much risk of an outsized breakout in inflation currently.

Feds Yellen Says Inflation is Lower Than Forecast

Fed Chair Yellen was the keynote speaker at the NABE conference and spoke on the topic of “Inflation, Uncertainty, and Monetary Policy.”  It appears that the Fed is unsure why inflation has not perked up and believe that monetary policy will need to stay lower for longer for the Fed to see inflation move up to its target of 2%. Currently the year over year core PCE inflation estimate if 1.4%, well under the Feds target.

U.S. New Home Sales Declined

The Commerce Department reported that new home sales decreased 3.4%to a seasonally adjusted annual rate of 560,000 units last month, which was the lowest level since December 2016. July’s sales pace was revised up to 580,000 units from the previously reported 571,000 units. Economists had expected new home sales, which account for 9.5% of overall home sales, to 3.3% to a pace of 588,000 units last month. The inventory of new homes on the market rose 3.6% percent to 284,000 units, the highest level since May 2009, but only 50% of its peak in 2007.

U.S. Housing Prices Increased

The U.S. National Home Price Index rose 5.9% in July from a year ago, beating estimates. Growth in the 20-city composite groups was up 5.8%, compared with June’s 5.6% rise. Seattle, Portland and Las Vegas reported the highest year-over-year gains among the 20 cities.

UK Business are Retaining Earnings

UK businesses are building up retained earnings due to the uncertainties being thrown up by the Brexit process. Data from UK Finance, showed that non-financial companies built up deposits by 8.7% year over year in August, up from 7.5% year over year in July. Consumer borrowing growth also cooled, to growth of 1.5% year over year from 1.9% in the month prior. UK GDP data, released tomorrow, is expected to confirm growth at 0.3% quarter over quarter, half the rate being seen in the Eurozone. Moody’s cited the consequences of Brexit-related uncertainty as a factor in downgrading British sovereign debt to Aa2 from Aa1.