EUR/USD Daily Technical Analysis for September 29, 2017

The EUR/USD rebounded slightly on Thursday following steady inflation numbers that were released in German which was accompanied by softer than expected confidence numbers in the European largest economy. The German Institute lifted their growth forecast, and solid sentiment data from the EU, helped buoy the currency pair.

Technicals

The EUR/USD rebounded after testing Wednesday’s lows at 1.1721.  Additional support is seen near the August lows at 1.1661. Resistance on the currency pair is seen near the 10-day moving average at 1.1884. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to a lower exchange rate for the EUR/USD

Inflation Was Steady

German HICP inflation steady at 1.8% year over year in September, according to preliminary data. The national CPI rate also held steady at 1.8% year over year, despite the fact that energy and food price inflation accelerated sharply. Energy prices rose 2.7% year over year, after rising 2.3% year over year in the previous month. Food price inflation accelerated to 3.6% year over year from 3.0% year over year. Services price inflation meanwhile held steady at 1.6% year over year. Reported earlier the Spanish headline rate fell back to 1.9 year over year in September from 2.0% year over year in the previous month and the numbers are consistent with our expectations that the overall Eurozone HICP rate will equally remain unchanged in September, thus adding little to the ongoing debate at the ECB about the “recalibration” of policy parameters for 2018.

German Consumer Confidence Slid

German GfK consumer confidence unexpectedly fell back slightly to 10.8 in the October projection from 10.9 in September, suggesting that the election cast its shadow. The full breakdown for the September reading showed a marked improvement in economic sentiment, but a sharp setback for income expectations and the willingness to buy also eased slightly, while inflation expectations turned less negative. Still strong confidence numbers that suggest consumers continue to underpin the recovery, but also indicate that energy price variations quickly leave a mark.

The German Institute Lifted Growth

The German institute lifted growth forecast for 2017 to 1.9%, followed by 2.0% in 2018. The institutes say in their latest joint economic projection that the recovery has broadened and strengthened and that indeed ties in with the latest data out of Germany, even if the Ifo readings came in somewhat weaker than anticipated. Further backing then for Weidmann’s hawkish stance on further bond buying, although it seems, for now, he won’t get a majority to push through his call for an end to QE just yet

Eurozone Confidence is Higher

Eurozone ESI economic confidence higher than expected at 113.0, up from 111.9 in the previous month. Industrial confidence rose to 6.6 from 5.0, while the services sector reading improved to 15.3 from 15.1 and consumer confidence was confirmed at -1.2, also up from the previous month. Together with the strong PMI readings, the data adds to signs that the recovery continued to strengthen in Q3, which backs the ECB’s move towards a slightly less accommodative policy stance and a reduction in monthly QE purchases next year, although there doesn’t seem to be a firm majority yet for a commitment to an end date for QE.

ECB’s Liikanen Talks Dovish.

Liikanen said he sees an ongoing need for “very substantial degree of monetary accommodation”, in order “for underlying inflationary pressures to gradually build up”. Liikanen stressed that the “ECB’s policy target is symmetrical” and that “it is of equal importance to act effectively on inflation levels that are above or below the price stability objective”. Nothing really new there, but a sign that Liikanen will not back Weidmann’s call for an end to QE, although Liikanen confirmed again that the ECB will decide on its future policy “calibration” this autumn.

The ECB’s Praet is still uncertain about the strength of inflation. The Executive Board member said again that while he is confident that the ECB’s goal will be reached essentially, the central bank is not yet done. A further defence of the ECB’s ongoing considerable degree of monetary accommodation.

U.S. Jobless Claims Rose

U.S. weekly jobless claims rose 12k to 272k in the September 23 week after dropping 21k to 260k in the prior week. The 4-week moving average rose to 277.75k from 268.75k. Continuing claims fell 45k to 1,934k in the September 16 week following the 44k jump to 1,979k previously. The BLS said claims surged in Florida Georgia due to Irma.