EUR/USD Daily Technical Analysis for September 4, 2017

Stronger than expected manufacturing data offset the weaker than expected U.S. jobs data keeping the dollar rangebound on Friday, before the long holiday week end in the U.S. The jobs data was seasonally adjusted which pushed expectations lower, but the 156K increase was worse than expected. ECB speak shows that many believe the inflationary goals have not been met which has kept a lid on the currency pair.

The EUR/USD snapped higher following the lackluster U.S. jobs data, but then moved lower and remains in a grinding uptrend, buoyed ahead of support near the 10-day moving average at 1.1860. Resistance on the currency pair is the weekly highs at 1.2070. Momentum is relatively flat as the exchange rate is grinding higher in a slow trend, which is placing the MACD (moving average convergence divergence) histogram near the zero-index level, with a flat trajectory which reflects consolidation.

Reflationary Phase Hasn’t Materialized

The ECB’s Vice President sounded optimistic on growth, saying that the “ongoing cyclical recovery in the euro area is now broader and more consolidated” and the region “is now more resilient to shocks as a result of a reduction in imbalances and stronger synchronization of the economic cycle across countries”. Constancio added that “a correction in the worldwide risk premia, particularly in the bond market seems now more absorbed”, but he warned that “financial conditions may nevertheless deteriorate suddenly”, and also said that “the strong worldwide reflationary phase that seemed likely at the beginning of the year has not materialized. Therefore the tasks of normalising inflation and unemployment to acceptable levels continue to be difficult”. As a precursor to next week’s ECB meeting the comments confirm that increasingly optimistic view on growth and the likely upgrade to the 2017 growth projections. At the same time though the ongoing warnings on inflation mean the ECB will remain cautious when it takes the foot off the accelerator. Still, Bund futures are heading south on the optimistic growth comments.

U.S. Payrolls Come in Weaker than Expected

Non-farm payrolls increased by 156,000 jobs in August comparted to expectations that jobs would grow by 180,000. June was revised down from 231,000 to 210,000 while July fell from the initially reported 209,000 to 189,000, according to the Bureau of Labor Statistics. The bulk of the 41K decline in revisions was mainly due to a 37K drop in government jobs. The unemployment rate was 4.4% in August compared to July’s jobless rate 4.3%. Average hourly earnings increased by 0.1% in August to an average of $26.39 an hour. Wages have risen 2.5% in the past year, unchanged from July.

U.S. Construction Spending Declined

U.S. construction spending unexpectedly fell in July, hitting a nine-month low, according to the Commerce Department. Construction spending decreased 0.6% $1.21 trillion. That was the lowest level since October 2016 and followed a downwardly revised 1.4% in June. Economists had expected construction spending increasing 0.5% in July after a previously reported 1.3% drop in June. Construction spending increased 1.8% on a year over year basis.

The ISM Manufacturing Was Stronger than Expected

The Institute of Supply Management reported that National factory activity gained for the third consecutive month in August, beating expectations. The ISM manufacturing index climbed to 58.8 in August, up from 56.3 in July, beating estimates of 56.5.

UK Manufacturing PMI Was Hotter than Expected

The UK manufacturing PMI survey beat expectations, rising to a four-month high of 56.9 in the August headline, up from 55.3 in July which was revised from 55.1. The median forecast had been for 55.2. Broad expansion was reported. The rates of expansion in production and new orders were the strongest since mid 2014. New export business remained strong, near the highest levels for this measure since records began in 1996, underpinned by the competitive benefits that the weaker pound and a strong global economy have brought. Domestic business was also robust. Job creation rose for a 13th straight month, and at the quickest pace since June 2014. Purchase price inflation accelerated for the first time in seven months. Business optimism in the sector rose to a three-month high, though reported sign of material and staff shortages may crimp potential for the sector to grow.

The Swiss PMI Rose

Switzerland’s manufacturing PMI unexpectedly rose, rising to 61.2 in August from 60.9 in July. The median forecast had been for a drop to 60.2. This is the best reading the data series has seen since February 2011. Output increased at its sharpest pace since July 2010. The 3%-odd depreciation of the franc from late September to early August helped underpin manufacturing activity in the export oriented Swiss economy.

Japanese PMI Expanded

Japanese manufacturing activity expanded in August. The Markit/Nikkei Japan Final Manufacturing Purchasing Managers Index (PMI) inched up to 52.2 in August, less than a flash reading of 52.8 but just above a final 52.1 in July.