EUR/USD Daily Technical Analysis for September 7, 2017

The EUR/USD was nearly unchanged for the second consecutive trading session ahead of Thursday’s ECB meeting. While the central bank is expected to keep a dovish tone, there are concerns that Draghi will discuss quantitative tightening. Softer than expected German manufacturing orders were offset in line ISM Services that showed strong components.

Technicals

The EUR/USD generated a doji day where the close and open were at the same level. Prices are hugging near the 10-day moving average which is seen as support near 1.1902.  Resistance is seen near last week’s highs at 1.2070.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the red with a flat trajectory which reflects consolidation.

German Manufacturing Orders Contracted

German manufacturing orders unexpectedly corrected -0.7% month over month in July, June was revised down to 0.9% month over month from 1.0% month over month. Domestic orders corrected -1.6% month over month, after surging 4.8% month over month in the previous month. Foreign orders stagnated and it is not just the strong EUR that is to blame, with orders from other Eurozone countries actually falling for a second consecutive month. Somewhat of a set back then for the German manufacturing sector, which ties in with the dip in the German manufacturing reading that month. Ifo and PMI readings for August, however, suggest a stabilization with subsequent data, still, for now, it will give the doves at the ECB something to argue.

The Fed’s Kashkari is Dovish

Fed dove Kashkari said rate hikes may be doing real harm to the economy and premature rate hikes are not free in terms of inflation and job growth, as the Fed may be allowing inflation expectations to slip. He also sees a lot more slack in the labor market than the Fed appreciates. The Minneapolis Fed president is taking part in a town hall meeting and will speak again shortly; having dissented against hikes in the recent past, this should not come as a surprise to the markets.

Eurozone Retail PMI Contracted

Eurozone retail PMI dropped back to 50.8 in August from 51.0 in the previous month. The headline number points to ongoing improvements in like-for-like sales, driven by a large extent by Germany, while the increase in France slowed down considerably and Italian sales continue to contract. Furthermore, sales continue to contract on an annual basis. All in all, some weakening and diverging cross country trends, with Markit reporting that “conditions in the euro area retail sector remain challenging”.

Germany’s Schaeuble says “everybody” wants rate normalization, while at the same time adding that central bank independence must be defended. Schaeuble also called Barnier’s stance on Brexit negotiations “appropriate” and stressed that the EU must keep together after Brexit, while warning that there will be “no free lunch” for the U.K. even if solutions to limit the damage from Brexit must be found. Nothing really new there. It is not the first time that Schaeuble has called on the ECB to end its ultra accommodative monetary policy and Bundesbank President Weidmann clearly is in agreement that QE should end as soon as possible. So far though, Weidmann hasn’t had much backing and it seems the strong EUR and geopolitical risks will keep the ECB on a very cautious path to the phasing out of asset purchases.

U.S. ISM Services Were In Line with Expectations

The Institute for Supply Management reported that its non-manufacturing index increased 1.4 points to 55.3 in August, compared to expectations of 55.3, rebounding from an 11-month low in the prior month. The July increase in services industry activity also reflected a jump of 1.6 points. The employment sub-index jumped 2.6 points.  The business activity index increased 1.6% points in August from July, reflecting growth for a 97th consecutive month. The new orders index also registered higher at 57.1 in August, 2 points higher than the reading of 55.1 in July.

The U.S. Trade Deficit Rose

The U.S. Commerce department reported that the trade deficit rose 0.3% to $43.7 billion in July. When adjusted for inflation, the trade deficit widened to $61.6 billion from $60.8 billion in June. The real goods deficit in July was below the second-quarter average of $62.4 billion. Expectations were for a trade shortfall widening to $44.6 billion in July. Exports fell 0.3% to $194.4 billion in July. Exports of motor vehicles and parts fell by $0.6 billion, but exports of capital goods rose by $0.9 billion. Exports to China increased 3.5% while those to the European Union tumbled 9.8%. Imports of goods and services slipped 0.2% to $238.1 billion in July. Imports of motor vehicles and parts fell by $0.8 billion and crude oil shipments declined by $1.0 billion. Imports of goods from China increased 3.1%.