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EUR/USD Daily Technical Analysis for January 16, 2018

 

The EUR/USD moved higher as Eurozone exports widened and European yields continued to outpace U.S. yields. Softer than business inventories and moderate inflation has allowed the Euro to climb to a 3-year high versus the greenback.

Technicals

The EUR/USD continued to break out pushing to a fresh 3-month high and poised to test monthly resistance near 1.30. Prices pushed through resistance which is now support seen near the September highs at 1.21. Additional support is seen near the 10-day moving average at 1.2051. Momentum has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Eurozone trade surplus widens as exports rise

The Eurozone posted a trade surplus of EUR 22.5 billion in November, up from EUR 19.0 billion in the previous month, with export growth outpacing import growth in November. The unadjusted surplus for the first eleven months of the year amounted to EUR 213.1 billion, down from EUR 237.7 billion in the corresponding period last year, with exports rising 8%, while nominal imports rose 10.0%. The monthly data shows, however, that short-term trends are improving and consistent with a positive contribution of net exports to overall growth in the last quarter of the year.

Brexit is Likely to Pick up

Brexit-related developments are likely to pick up with talks between the UK and EU on a transition deal are due to start, although negotiations on a future trading relationship are not due to begin until March. A transition period, which would see the UK remaining in the single market and customs union, but without voting rights, for at least two years after actual Brexit on 29th March 2019, is widely considered as being crucial in maintaining the confidence of businesses with long-term planning horizons, such as airlines. The government still hasn’t made it crystal clear what type of Brexit it wants, whether a soft form like the Norwegian or Swiss models or a hard form with a trade new deal, like Canada, although its language ostensibly points to a hard exit.

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Both the UK and EU have also been making contingency plans for a scenario where Britain leaves without any deal, which is looking less likely since last month’s show of resolve behind the agreement on divorcing terms. The EU is aiming to have negotiations wrapped up by October, to allow time for ratification ahead of March 2019. Aside from the obvious hurdle of 27 nations ratifying a new deal, the UK parliament will also vote on it. A vote against in the UK’s House of Commons, which some fear would inevitably spark a constitutional crisis that would trigger a new general election or the second referendum on EU membership.

ECB’s Weidmann plays down risk of rate hike

The Bundesbank President repeated that in his view the ECB could well have opted for a quicker end to net asset purchases with a clear commitment to a firm end date. He also stressed, however, that the risk of imminent rate hikes in the Eurozone is slim as the ECB very clearly stated that rates will remain at current or lower levels until well after the end of net asset purchases. Asset purchases are currently set to continue until September at the latest.

CPI Rose in December

U.S. Cleveland Fed’s Median CPI rose 0.3% in December after a 0.2% November gain. The 16% Trim CPI rose 0.2% last month after a like-sized gain in November. The Median and Trim CPIs are alternative measures of core prices, and they compare to the 0.3% gain in the BLS measure. On a 12-month basis, the Median CPI accelerated to 2.4% year over year from 2.3% year over year previously. The 16% Trim rose to a 1.9% year over year clip versus November’s 1.8% year over year, and the BLS’s rate of 1.8% year over year from 1.7% year over year.

This article was originally posted on FX Empire

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