EUR/USD Daily Technical Analysis for September 6, 2017

The EUR/USD whipsawed initially climbing and then trading nearly unchanged.  Economic data was broadly in line with expectations with August composite PMI steady versus July and Retail Sales edging lower. It appears that the ECB is going to take a slow route toward quantitative tightening.

Technicals

The EUR/USD was nearly unchanged forming a doji day which is a sign of indecision as the open and the close are at the same level. Prices are hovering just above short-term support near the 10-day moving average at 1.1890.  Resistance is seen near last week’s highs at 1.2070.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory that reflects consolidation.

ECB to take slow Route out of QE.

With the EUR still looking strong and geopolitical risks back in focus there is increasingly broad consensus that the ECB will be taking a very cautious and slow approach to the end of monthly asset purchases. Few expect the central bank to announce any real changes already this week, and October is pretty much consensus as the timing for the ECB’s first announcement on QE. In our view it is looking increasingly unlikely that Draghi will already announce a full schedule for the phasing out of asset purchases this year but it seems the central bank is looking for a broader overhaul of its policy focus to increase flexibility as it starts to take the foot off the accelerator.

Eurozone August PMI Steady

Eurozone August Composite PMI steady versus July, after the services reading was revised down to 54.7 from 54.9 reported initially and versus 55.4 in July. This left the composite at 55.7, down from 55.8 in the initial reading and unchanged from the previous month, with an improvement in the manufacturing number compensating for the drop in the services reading. Markit reported that economic growth remained solid and steady in August, adding that while output so far in the third quarter is slightly below the highs seen in the second quarter, but “remains among the best seen over the past seven years”. This ties in with other survey indicators for the third quarter so far, albeit with a clear split between investors, which are turning more cautious, and surveys among real sector players, which remain very optimistic. Job creation remained strong and overall the PMIs also suggest a broadening of the Eurozone recovery that will add to the arguments for a gradual reduction of the substantial monetary stimulus that the ECB is still pumping into the economy.

Eurozone Retail Sales Dropped

Eurozone retail sales dropped -0.3% month over month, broadly in line with expectations and correcting from a rise of 0.6% month over month, which was revised up from 0.5% month over month reported initially. The three months trend rate eased slightly to 0.7% from the 0.8% where it has been since April. The annual rate dropped back to 2.6%, which is still a robust number, with growth in non-food sales outpacing food and tobacco, which dropped over the month in July.

Swiss Inflation Perked Up

Swiss inflation picked up in August data, with the headline CPI figure rising to a rate of 0.5% year over year, up from 0.3% in May. This brings the rate back to within a tad of the 0.6% year over year cycle high recorded in February and March. This uptick will be welcome be Swiss policymakers, though President Jordan said over the weekend that the central bank remains firmly committed to maintaining ultra-accommodative monetary policy settings.

UK PMI Services Disappointed in August

The UK August services PMI missed expectations, falling to a 11-month low of 53.2 in the headline reading after 53.8 in July. The median forecast had been for a more modest dip to 53.5. Survey respondents noted that subdued client demand and heightened uncertainty about the domestic economic outlook had weighed on business activity during August. New orders rose at the second slowest pace since September last year, and some respondents in the sector reported delayed spending decisions among clients. Despite this, job creation was at its strongest since early 2016, while input price inflation rose by the quickest pace in six months, with the blame falling on sterling’s weakness. Business confidence was at a three-month high, but remained subdued compared to levels seen prior to last year’s Brexit vote, and once again the uncertainties stemming from the process to leave the EU got a mention as being a confidence-damping factor. The composite PMI worked out at 54.0 in August, fractionally down on the 54.1 reading seen in July, and consistent with Q2 GDP growth of 0.3% quarter over quarter.