EUR/USD Daily Technical Analysis for May 15, 201

The EUR/USD moved higher on Friday following softer than expected U.S. retail sales data, which weighed on U.S. yields as well as the greenback.  Consumer prices, which were released on Friday by the Labor Department were in line with expectations, but failed to increase at the same rate as wholesale prices which were released on Thursday.  With the ECB, likely to remove any easing bias at their June meeting, the currency pair could test trend line resistance early next week.

Technicals

The EUR/USD rallied bouncing near trend line support, near and upward sloping trend line at 1.0845. The exchange rate slipped through resistance which is now short term support near the 10-day moving average at 1.0917. Resistance is seen near a downward sloping trend line that comes in near 1.0990.  Momentum remains negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the spread (the 12-day exponential moving average (EMA) minus the 26-day EMA) crosses above the 9-day EMA of the spread.

U.S. Consumer Prices Edged Higher in April

U.S. CPI rose 0.2% in April, with the core up 0.1%, not as much as feared after yesterday’s PPI. There were no revisions to the March declines of 0.3% in the headline or the 0.1% dip in the core. On an annual basis, CPI slowed to a 2.2% year over year pace from 2.4% year over year, with the core reading at 1.9% year over year from 2.0% year over year. Energy costs rebounded 1.1% after a 3.2% March drop. Services prices inched up 0.2% from -0.1%. Housing costs rose 0.3%, with owners’ equivalent rent at 0.2%. Apparel prices dipped 0.3%.  Transportation costs were up 0.1%. Food and beverage prices rose 0.2%. Education and computer costs fell 0.3%. And tobacco climbed 4.2%.

U.S. April retail sales rose 0.4%, while sales excluding autos up 0.3%, slightly below forecasts. The -0.3% print on March headline sales was revised up to a 0.1% gain, and the 0.2% increase on ex-auto sales was bumped up to 0.3%. Sales excluding autos, gas, and building materials edged up 0.2% from 0.6% which was revised from 0.3%. Auto sales increased 0.7%, bouncing back from three consecutive monthly declines. Electronics and building materials increased 1.3% and 1.2%, respectively. Gas station sales were up 0.2%. Health and personal care prices rose 0.8%. Non-store retail sales jumped 1.4%. General merchandise sales fell 0.5%. Miscellaneous sales rose 0.1%. Real average hourly earnings rose 0.1% in April after a 0.4% March increase.

Eurozone Industrial Production Dropped in March

Eurozone industrial production dropped -0.1% month over month in March, against expectations for a rebound from the decline in the previous month, which was revised up to -0.1% month over month from -0.4% month over month reported initially. This left production unchanged quarter over quarter in Q1, after a rise of 1.1% quarter over quarter in Q4 last year. With the late onset of winter, energy production was the main drag holding back overall production growth, with energy falling -3.2% month over month in March and -4.9% month over month in January. We don’t expect the number to change the preliminary GDP figure.

German Inflation was In line with Expectations

German April HICP confirmed at 2.0% year over year, in line with expectations and the preliminary number. The acceleration from just 1.5% year over year in March, was largely explained by the Easter effect, which lifted holiday related prices in April this year, rather than March as in 2016. This saw prices for package holidays declining on a year over year basis in March and jumping sharply higher in April. Things should normalize again with the May numbers, but with PPI and import price inflation also trending higher underlying price pressures are very slowly building up and wage growth has been above the Eurozone average for a while as the labor market tightens.

German Growth Move Higher

German Q1 GDP growth accelerated to 0.6% quarter over quarter in the first quarter of the year, from 0.4% quarter over quarter in Q4 last year and in line with expectations. The statistics office reported that both domestic and external demand underpinned the quarterly growth rate and highlighted in particular that investment growth strengthened. Consumption growth was modest meanwhile and net exports improved, after detracting from growth in 2016. The annual rate rose 2.9% year over year, although the later timing of Easter this year boosted the growth rate and taking this into account the annual rate remained steady at 1.7% year over year.