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EUR/USD: Pair Drops after FOMC Statement
The euro currency kept gaining against the greenback on Wednesday, sliding moderately from the intraday highs after the Fed's meeting, as the buck suffered after the much-slower-than-expected GDP pace during the first quarter of 2015.
The Federal Reserve Open Market Committee unveiled a statement after its two-day meeting saying that ''the pace of job gains moderated, and the unemployment rate remained steady.''
The EUR/USD cross was trading 1.22% elevated at $1.1114, setting the highest value since March 4 at $1.187 during the US market hours.
Wednesday macro updates
The Bureau of Economic Analysis unveiled the first estimate of annualized GDP for the March quarter, showing a worse-than-expected slowdown to 0.2%. The release missed the expectation of 1.0% expansion, and fell from 2.2% seen previously.
"The (GDP) breakdown is not as weak as the final sales number and inventory build data suggests," Deutsche Bank currency strategist Alan Ruskin mentioned. "Clearly, the FX market thinks otherwise," he added.
Harsh weather, a sharp appreciation of the dollar, labor strikes at ports along the US West Coast, and the mixed effects of lower oil prices were all factors that restrained the economy early this year. But rather than being lost entirely, economists and policymakers expect momentum to rebound in the current quarter.
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EUR/USD broke out of wide range – is it the real thing?
EUR/USD is hugging 1.11 at the time of writing. This is above the 1.1050 level that capped its wide range trading. It already reached 1.1186 earlier in the day.
The move was certainly decisive and leaned not only on the obvious USD weakness but also on some euro strength. Nevertheless, the question must be asked: is it a real break?
EUR/USD was itching to make a move higher and flirted with the 1.10 level. One of things pushing the pair higher was a stronger than expected German inflation number: +0.3% y/y, better than predicted.
The poor US GDP report, that showed an annualized growth level of only 0.2%, basically nothing q/q, set the pair on fire: euro/dollar shot above the all important level and continued advancing gradually. It was no knee-jerk reaction but rather a healthy move higher.
But then came the FOMC Statement. Basically, the Fed had the Q1 numbers and blamed them on the weather. It acknowledged the weakness but saw it as temporary.
Digging deeper into the report, we have been given a hint about the Fed’s expectations for more shopping, and perhaps a hint that the next set of indicators, namely wages, will be better.
If the US employment cost index and core PCE also continues ticking higher, we could see 1.1050 broken back to the downside, despite its proven importance.
It happen later or even beforehand. In the bigger scheme of things, the Fed is still on course to tighten this year: a rate hike is still firmly on the cards in 2015.
And on the other side of the pond, the ECB is still determined to continue printing money, continuing with its QE program until 2016. Draghi sees his better forecasts achieved only on the full implementation of the program.
So, monetary policy divergence is here to stay, despite the very necessary correction that came on good foundations.
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German Shoppers Keep Their Wallets Tight in March
Retail sales data for Germany were significantly weaker in March after a slower reading booked in the previous month, the latest report from the German statistical office (Destatis) showed on Thursday.
Retail turnover gave up 2.3% in real terms month-on-month in the third month of the year, compared to a 0.5% decrease recorded in the previous month and market expectations of a 0.5% gain.
Measured on an annual basis, the gauge rose 3.5% in the reported period following a revised increase of 3.3% in the preceding month, while analysts had projected an expansion of 3.1%.
The retail sales index, also known as 'real retail sales', is the primary gauge of consumer spending which measures the change in the total value of inflation-adjusted sales at the retail level, excluding automobiles and gas stations. The figure is also an important component of GDP.
Inflation edges higher in April
Inflation in Germany, Europe's biggest economy, crept higher in April on an annual basis, but dipped into the red month-on-month, preliminary data showed on Wednesday. The gauge remained well below the desired levels.
The national CPI rose 0.4% year-on-year during the fourth month of the year, compared to the 0.3% pace of growth seen in March, the federal statistics office Destatis said in a statement.
On a monthly basis, the CPI, however, trashed 0.1%, following the 0.5% hike seen a month before.
German jobless claims fall by 8,000 in April
The number of unemployed people in Germany declined for the seventh consecutive month in February, while the country’s jobless rate held steady at a record low, official data showed on Thursday.
In a report, Germany's Federal Statistics Office said the number of unemployed people fell by a seasonally adjusted 8,000 this month, compared to expectations for a drop of 12,000.
Jobless claims decreased by 14,000 in March, whose figure was revised from a previously reported fall of 15,000.
The report showed that Germany’s unemployment held steady at 6.4% in April, unchanged from March and in line with expectations.
EUR/USD was trading at 1.1221 from around 1.1192 ahead of the release of the data, while EUR/GBP was at 0.7255 from 0.7241 earlier.
Meanwhile, European stock markets remained lower. Germany's DAX fell 0.25%, the EURO STOXX 50 shed 0.55%, France’s CAC 40 declined 0.7%, while London’s FTSE 100 dipped 0.25%.
~Since the start of April the EURUSD rose more than 3.0% and is in a recovery phase since late April, trading well above the 10-day moving average. Yesterday the pair rose with above average volume and close in the middle of the daily range. Stochastic is showing an overbought market but even with the pair well into overbought territory, we should not fight the strong upward correction just yet.
Euro zone deflation ends, prices flat in April
Consumer price inflation in the euro zone was flat in April after four straight months of declines, prompting hopes that the region's massive stimulus program was taking effect, official preliminary data showed on Thursday.
In a report, Eurostat said consumer price inflation was flat this month, compared to expectations for a decline of 0.1% and following a drop of 0.1% in March.
The rate has now been below 1% for 18 straight months, well under the European Central Bank's target of near but just under 2%.
Core CPI, which excludes food, energy, alcohol, and tobacco costs rose by a seasonally adjusted 0.6% in April, in line with forecasts and unchanged from March.
Looking at the main components of euro area inflation, services (0.9%, compared with 1.0% in March) and food, alcohol & tobacco (0.9%, compared with 0.6% in March) are expected to have the highest annual rates in April, followed by non-energy industrial goods (0.1%, compared with 0.0% in March) and energy (-5.8%, compared with -6.0% in March).
EUR/USD was trading at 1.1214 from around 1.1209 ahead of the release of the data, while EUR/GBP was at 0.7255 from 0.7254 earlier.
Meanwhile, European stock markets were mostly higher. Germany's DAX tacked on 0.25%, the EURO STOXX 50 rose 0.2%, France’s CAC 40 declined 0.1%, while London’s FTSE 100 inched up 0.1%.
source
The EUR/USD continue to have a a healthy uptrend and breaking the resistance lines lets see if the price will be able to break the resistance 1.1230 on the 4 hours chart.
EUR/USD: Euro Re-Attempts $1.12, US Data Provides Brief Relief
The euro currency was trading elevated against the greenback on Thursday, attempting several times to profoundly jump over the $1.12 level as upbeat US labor and manufacturing data provided just temporarily relief for the buck.
"Markets are responding to the uptick in wage growth and the firmness in jobless claims which are at a 15-year low," Credit Agricole currency strategist Mark McCormick mentioned. ''That bodes well for next week's U.S. employment report. People are looking for a reason to get back to the dollar after the soggy data we had in the first quarter."
The euro climbed 0.66% to trade at $1.1201 against the US dollar on Thursday afternoon.
The cross reached a new monthly high of $1.1249 during the European market hours as the euro zone CPI escaped the four-month imprisonment in deflation territory, providing some extra support. Moreover, German retail sales dropped 2.3% in March on a monthly basis, after the 0.5% fall a month before, while 3.5% growth was reported year-on-year, the country's national statistics agency said.
US events
Later during the day, the initial jobless claims hit the lowest mark in 15 years, as the seasonally adjusted reading showed a value of 262,000 in the week ending April 25, falling to the lowest in 15 years. The Chicago PMI jumped to a reading of 52.3 points for the manufacturing sector in April, better than the expected hike to 50.0 points, increasing from the value of 46.3 seen a month ago.
On Wednesday, the Federal Reserve Open Market Committee indicated a desire to raise interest rates, however it would need further proof after the slow pace of growth of the US economy during Q1 of 2105.
The FOMC statement stated the aim to increase interest rates and at the same time it reaffirmed in its ongoing data-dependent mode amid soft macro updates during the latest quarter. However, the Federal Reserve withdrew all calendar guidance in terms of the exact timing of the interest rate increase.
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Eurozone Moves Out Of Deflation; Unemployment Lowest Since 2012
Eurozone consumer prices remained flat in April after falling for four consecutive months, largely reflecting slower decline in energy prices. The unemployment rate in the currency bloc remained unchanged at its lowest level in nearly three years in March.
The harmonized index of consumer prices showed no change in April following a 0.1 percent fall in March and 0.3 percent decline in February, flash data from Eurostat showed Thursday.
The European Central Bank targets inflation below, but close to, 2 percent over the medium term.
Core inflation that excludes energy, food, alcohol and tobacco remained unchanged at 0.6 percent. The figure also matched economists' expectations. Final data will be released on May 19.
It is too early to conclude that the threat of deflation has lifted altogether, Jonathan Loynes, chief European economist at Capital Economics, said.
Separately, Eurostat said the Eurozone jobless rate was at a seasonally adjusted 11.3 percent in March, unchanged from both February and January. It was the lowest since May 2012.
Economists had forecast a decline in the rate to 11.2 percent. In March 2014, the jobless rate was 11.7 percent.
While the trend in unemployment still appears to be downwards, it is too slow to prompt any meaningful pick-up in wage pressures in the foreseeable future, Loynes said.
The further drop in unemployment should be supportive to Eurozone consumers and they are benefiting from the boost to their purchasing power coming from low inflation/deflation, IHS Global Insight's Chief European Economist Howard Archer said. There is currently little evidence that Eurozone consumers are delaying purchases in anticipation of falling prices.
Among the sub-components of Eurozone consumer prices, food, alcohol and tobacco prices and services costs advanced 0.9 percent each and non-energy industrial goods prices rose 0.1 percent. Offsetting these increases, energy prices declined 5.8 percent, but slower than the 6 percent decrease in March.
German consumer prices increased to a 5-month high of 0.4 percent in April. Italy's inflation turned positive in April. Consumer prices rose unexpectedly 0.3 percent annually, reversing a 0.1 percent fall in March.
But consumer prices declined for the tenth consecutive month in Spain. Consumer prices fell 0.6 percent year-on-year in April, slower than a 0.7 percent drop seen in March.
According to Eurostat, the number of unemployed in the euro area declined by 36,000 from the prior month to 18.105 million in March. The figure was lower by 679,000 from a year ago.
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3 Reasons For Euro's Mind-Boggling Rally
3 Reasons for the Euro's Mind Boggling Rally
It has now become clear that investors used Wednesday's post FOMC intraday rebound in the dollar as an opportunity to buy the euro at a lower level. The single currency rose for the sixth consecutive trading day to its strongest level since February. The last time we saw such continuous strength without a pause or retracement was in March 2009 and at the time, the rally lasted for 8 trading days before the EUR/USD turned sharply lower, falling 800 pips in the course of a month. There are 3 reasons for Thursday's rally but before we get into them, the one thing that is NOT supporting the uptrend in the EUR/USD is fundamentals.
Most of Thursday morning's U.S. economic reports surprised to the upside while the latest Eurozone data highlighted ongoing weakness in the Eurozone economy. German retail sales fell -2.3% in March, the steepest decline since December 2013. The unemployment rate for the Eurozone was expected to improve slightly to 11.2% but it held steady at 11.3%. The German jobless rate also remained unchanged at 6.4% as only 8k people fell off unemployment rolls compared to a -15k forecast. Moody's also lowered Greece's credit rating but EUR/USD traders ignored the move.
Three reasons behind the euro's mind boggling rally versus the U.S. dollar.
1. German-U.S. Yield Spread is Moving Higher!
U.S. yields were up Thursday but German yields moved even higher. The following chart shows how EUR/USD is being boosted by the German-U.S. 10-year yield spread, which started to turn higher right when the currency pair broke above 1.09.
2. Euro Accelerated Gains after Break Above 50-day SMA
The rise in the EUR/USD gained momentum after it broke above the 50-day SMA shown in the chart below. This was first time that the currency pair had done so since May. The move also accelerated as stops were trigged above the March high of 1.1052.
3. Positioning
Of course positioning had a lot to do with the move as the persistent strength of the currency and the break of a resistance level that has capped gains in the pair for the past 1.5 months led to short covering.
What's Next for EURO? Move Back Down to 1.10
The question everyone wants to know the answer to is what's next for EUR/USD? Fundamentally, the EUR/USD should be trading lower. Technically, the currency pair is closing in on some important resistance levels. The 61.8% Fibonacci retracement of the record high and record low for EUR/USD sits right above current levels and not far from that is the 100-day SMA. We believe that these resistance levels along with the overstretched rally should lead to a near term move back down to 1.10.
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