EUR/USD Daily Technical Analysis for August 22, 2017

The EUR/USD moved higher on Monday, as the Bundesbank reported that is continues to see strong growth.  A softer than expected U.S. Chicago National Fed Manufacturing report took some of the steam out of the greenback.  Traders will turn their focus to the end of the week, where both Mario Draghi and Janet Yellen will give speeches at the Jackson Hole conference. The Turkish German spat continues ahead of the elections which is generating additional volatility.

Technicals

The EUR/USD moved higher and is forming a bull flag pattern which is a pause that refreshes higher.  Resistance on the currency pair is seen near the August highs at 1.1910.  Support on the exchange rate is seen near the 10-day moving average at 1.1769. Momentum is neutral as the MACD (moving average convergence divergence) histogram is moving higher with a positive trajectory, but the MACD index is printing in the red.

The Bundesbank See Strong Growth Ahead

Bundesbank sees strong growth, but EUR strength to dampen inflation. The German central bank said in its latest monthly report that the 2017 GDP growth forecast may be revised up in the light of the strong economic momentum in the summer quarter. At the same time, the strengthening EUR is dampening price pressures, although the Bundesbank still said that German core inflation at least, is expected to pick up in coming months. The fresh reference to the strong EUR ahead of Draghi’s speech at Jackson Hole on Friday adds to signs that the ECB is remaining cautious as the strong currency already provides some degree of monetary tightening.

Turkish-German Spat Continues

Turkish-German spat continues ahead of the general election, with Turkey’s President Erdogan calling on his citizens in Germany to boycott the big parties, SPD and CDU, which according to Erdogan are Turkey’s enemies, in his view is the Green Party. Both Chancellor Merkel as well as SPD head Gabriel criticized Erdogan’s comment as an attempt to intervene in the German elections, stressing that all German citizens have the right to vote. The Turkish Community in Germany voiced similar sentiments stressing that it is becoming ever more important that German citizens with a Turkish background do vote, and that they are able to decide for themselves whether to do so. The far-right AfD is making progress and in some polls is the third-biggest party, staying away from the polls at all would only play into their hands, without changing the fact that the election is very likely to result in another Merkel led coalition between the two big parties  SPD and CDU.

UK Housing Prices Declined

UK house prices fell 0.9% month over month, according to the Rightmove price index for August, which is the biggest drop in a month this year. In the year over year comparison, prices rose 3.1%. Hardest hit were prices in London, where prices fell 1.9%. Prices have been hit by a slew of negative forces including Brexit-related uncertainties, political uncertainty which include the June elections PM May’s Conservative Party is governing from a greatly weakened position, relying on support from Northern Ireland’s DUP, declining inflation-adjusted average household incomes, and tax changes. These forces are likely to remain in play for a good time yet, and we expect the property market to subdued in the months ahead, and seen year over year comparisons dipping into negative territory before long.

U.S. Fed National Activity Index Fell

U.S. Chicago Fed National Activity index fell to -0.01 in July after bouncing to 0.16 in June which was revised from 0.13 from -0.30 in May. That dropped the 3-month average to -0.5 from June’s 0.09 which was revised from 0.06 and unchanged in May which was revised from -0.04. Of the 85 indicators that make up the index, 42 made positive contributions. A negative reading indicates below trend growth.

Slovenian PM Miro Cerar has warned about the timetable of negotiations in an interview with the Guardian newspaper, specifically saying that time when trade negotiations can start will have to be pushed out beyond the pencilled-in October start date. The EU has insisted that sufficient progress must be made on divorcing terms, financial arrangements, citizen rights, and the Irish border before talks on trade can commence. Cerar warned that “the process will definitely take more time than we expected at the start of the negotiations,” calling for “optimism on realistic grounds.” He also criticised the UK government’s paper on potential future customs arrangements, which was published last week, saying it was “not realistic” as it amounted to “cherry-picking,” which the EU has repeatedly stressed there cannot be.