EUR/USD Daily Technical Analysis for September 5, 2017

The EUR/USD was buoyed on Monday, as the dollar lost traction following the test of a hydrogen bomb by North Korea. European yields slumped but outpaced their U.S. counterparts, allowing the yield differential to move in favor of the Euro.  Positive European sentiment offsets softer than expected wholesale price inflation.  Jobless claims in Spain increased more than expected, showing some softness in the jobs market. The U.S. markets are closed in observance of Labor Day, which should reduce liquidity when the European markets close.

Technicals

The EUR/USD edged higher but the softer than expected EU PPI numbers capped the upside in the currency pair.  The exchange rate is forming a bull flag pattern that is a pause that refreshes higher.  Support on the currency pair is seen near the 10-day moving average at 1.1878, while resistance is seen at last week’s highs at 1.2070. There is very little momentum, which is reflected in the neutral reading of the MACD (moving average convergence divergence). The index is printing near the zero index level with a flat trajectory which reflects consolidation.

Eurozone Sentiment Improved

Eurozone Sentix investor survey improves slightly in September – to 28.2, with the institute seeing the Eurozone in a boom phase. The dip in the German reading for August was corrected partly in September, but the institute said the Sentix survey did not share the same optimism as the respondents of the Ifo survey. That ties in with the dip in ZEW investor confidence, which also suggested diverging views between financial markets and actors in the real economy.

Spanish Jobless Claims Increased in August

Spanish jobless claims rose 46.K in August, after falling 26.9 K in the previous month. The data are unadjusted but the annual comparison, while still showing a decline of -8.5% year over year, also looks less impressive than in July when jobless numbers dropped -9.4% year over year. Furthermore, registered employment, which is adjusted for seasonal factors, declined -15K in August. So, some slowdown in the pace of improvement, even though the Spanish recovery continues.

SNB’s Jordan signals steady monetary policy

Jordan said in an interview over the weekend that the SNB doesn’t intend to reduce its balance sheet, and that there is no need to do so. Indeed, he repeated that there are still ways to further extend the balance sheet if necessary. “It doesn’t make any sense to jeopardize the recovery by tightening our monetary policy”. Jordan admitted that the recent weakening against the EUR reduced the CHF’s “significant overvaluation”, but warned that the situation in foreign exchange remains fragile”, adding that “we don’t know if the short term movements we see in the markets are sustainable”. A confirmation then that the Swiss central bank is pretty much on hold for the foreseeable future while the awaiting the outcome of Brexit talks and geo-political developments.

Eurozone PPI Contracted in July

Eurozone July PPI inflation fell back to 2.0% year over year, more than anticipated and with June revised down to 2.4% year over year from 2.5% year over year reported initially. However, preliminary August HICP data already showed a renewed uptick in energy price inflation that will likely be reflected in the PPI number for that month as well and at the same time, PMI readings suggest that the disinflationary phase in cost pressures has come to an end. So, the overall tide in inflation seems to be slowly turning, even if the PPI number came in down in July.

The UK’s August construction PMI Disappointed

The UK’s August construction PMI disappointed, coming in with a headline reading of 51.1, down from 51.9 in July and the weakness level since August 2016. A sharp decline in commercial construction work drove the headline lower, which more than offset robust growth in residential building. Civil engineering activity was new stagnant. Reduced business investment and associated heightened economic uncertainty were reported by respondents to be crimping demand in the commercial sector. Job creation in the construction sector was its weakest since July 2016, which was the month after the vote to leave the EU, which caused a temporary economic shock. The biggest take away from the survey is that new order volumes fell for a second consecutive month, as this portends sustained weakness in the construction sector.

The British government has proposed “continuous negotiations” with its EU counterparts, according sources on the UK negotiating team cited by Politico. The idea, which reportedly stems from a “very senior” British negotiator, is to speed up a deal on the contentious issue of the final “exit bill.” This comes with negotiations having become near stagnant. The British government is eager for progress to have been made on divorcing terms before the EU summit in October. The EU has demanded that there be “sufficient progress” on divorcing terms before starting on economic and trade negotiations.