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The EUR/USD Consolidate Forming Another Doji Pattern

David Becker

The EUR/USD consolidated forming a doji day, and remained in the middle of the current range as higher than expected German inflation was offset by Thursday’s strong U.S. jobs data. The Eurozone trade surplus widened while the Fed’s Rosengren thinks there will be 3-more rate hikes in 2018.

Technicals

The EUR/USD made a doji day pattern which is when the open and the close are at the same level reflecting indecision.  The exchange rate remains rangebound trading in the middle of a wedge pattern which is capped near a downward sloping trend line that comes in near 1.243.  Support is seen near the 10-day moving average at 1.2310, and then an upward sloping trend line at 1.2240.  Momentum is neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory which reflects consolidation.

Eurozone trade surplus widened

Eurozone trade surplus widened to EUR 21 billion in February from EUR 20.2 billion in the previous month. Exports contracted, but so did imports. Intra-Eurozone dispatches also slowed down and the bad weather hitting Europe in the latter part of the month, likely left its mark on dispatches. The surplus in the first two months of the year amounted to EUR 22.4 billion, up from EUR 14.5 billion in the first two months of 2017. The surplus with the U.S. continues to widen, so unlike the China numbers earlier, the trade data will not ease potential conflict with a U.S. administration aiming to reduce imbalances.

German March HICP inflation was confirmed

German March HICP inflation was confirmed at 1.5% year over year, up from 1.2% year over year in the previous month. No surprise there and the breakdown confirmed that the pickup in March, which basically reversed the drop in the previous month, was impacted by special factors, namely sharp swings in seasonal food prices over the last couple of months. the long winter, base effects and the earlier timing of Easter this year all played a role. Heating oil prices also picked up again after a dip in the previous month and the annual rate jumped to 5.4% year over year, pretty much matching the January rate, after a -0.2% year over year outlier in February. The underlying picture hasn’t really changed.

Boston Fed’s Rosengren backs at least 3 more rate hikes this year

Boston Fed’s Rosengren backs at least 3 more rate hikes this year and he’s more optimistic than already quite positive FOMC forecasts on the U.S. economy. That said, trade tariffs risk disrupting the U.S. economy in unpredictable ways and fiscal stimulus could leave the economy vulnerable in the next downturn, arguing for increasing policy buffers before then raising rates. Rosengren sees Q1 jobs growth as strong, noting risk of a boom-bust if unemployment drops too far. It’s pretty clear the non-voter remains on a hawkish policy bent.

Eurozone HICP inflation is expected to be confirmed at 1.4% year over year with the final March reading next week. A clear acceleration from the 1.1% year over year in February, but that only brings the headline rate back to levels seen at the end of last year and much of the acceleration is due to special factors, including the early timing of Easter and variations in unprocessed food prices. Not enough for most ECB members to turn hawkish and confirm the end of QE just yet. The minutes show that most central bankers were more eager to play down the impact and importance of the change in guidance at the last meeting, then with setting the central bank on the path to the phasing out of asset purchases, never mind rate hikes.

Minutes from the March policy meeting show, however, that despite this officials are not happy yet that inflation is on a sustained path towards the target. Executive Board member Praet did highlight the recent tightening of financial conditions in his introductory remarks at the last ECB meeting “amid volatility in equity and foreign exchange markets”, and stressed that the March staff projections pointed “to continued growth above potential” while the baseline scenario for inflation remains for the headline rate to “increase gradually to the Governing Council’s inflation aim”. At the same time Praet, however, he also stressed that “measures of underlying inflation remained subdued and had yet to show convincing signs of a sustained upward trend”.

This article was originally posted on FX Empire

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