EUR/USD – Euro falls to 2-week low despite strong consumer inflation

Barring a strong turnaround, the EUR/USD is headed for a losing week. The pair has ticked lower on Friday, continuing the downward trend. Currently, the pair is trading at 1.1159, down 0.13% on the day. On the release front, Eurozone consumer inflation indicators impressed, with sharp gains in April. Final CPI climbed 1.7%, matching the forecast. This was up sharply from 0.8% in March. Final Core CPI rose 1.3%, edging above the estimate of 1.2%. This marked the strongest gain since March 2013. In the U.S., today’s highlight is UoM Consumer Sentiment, which is expected to rise to 97.8 points.

The U.S. posted strong data on Thursday, sending the euro lower. Unemployment claims dropped sharply to 212 thousand, down from 228 thousand. This was its lowest level in four weeks. On the manufacturing front, the Philly Fed Manufacturing Index jumped to 16.6 in May, a 4-month high. This was up sharply from 8.5 in April. Building permits and housing starts both improved in April. If U.S. numbers continue to point upwards and beat the forecasts, the Federal Reserve may have to reconsider its neutral stance towards rate moves. Currently, the markets have priced in no rate moves before 2020, but that could change, based on the strength of the U.S. economy.

The U.S. economy continues to perform well, despite the ongoing trade war with China which has seen both sides slap heavy tariffs on each other’s products. It’s a very different story, however, across the Atlantic. The eurozone economy has been struggling, and even the German locomotive has shown signs of weakness. The manufacturing sectors have been hit particularly hard, as the global trade war has dampened the appetite for German and European exports. The U.S. and China have been holding talks to diffuse trade tensions, but President Trump slapped new tariffs on Chinese products and China quickly responded with counter-tariffs. Investors are worried if the trade war escalates, Trump could target European cars made in China, which would hurt the massive German auto sector. This has led to sharp losses for German automaker listings on the DAX, which include BMW, Daimler and Volkswagen. On Wednesday, the U.S. announced a 6-month moratorium on tariffs on European and Japanese vehicles, but investors will likely remain nervous that the U.S. could impose further trade sanctions against China at any time.

Markets steady after a weak week

Fluid situations

EUR/USD Fundamentals

Friday (May 17)

• 5:00 Eurozone Final CPI. Estimate 1.7%. Actual 1.7%
  
• 5:00 Eurozone Final Core CPI. Estimate 1.2%. Actual 1.3%
  
• 5:00 ECOFIN Meetings
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 97.8
• 10:00 US Preliminary UoM Inflation Expectations
• 10:00 US CB Leading Index. Estimate 0.2%
• 13:40 US FOMC Member Clarida Speaks

*All release times are DST

*Key events are in bold

EUR/USD for Friday, May 17, 2019

EUR/USD for May 17 at 4:30 DST

Open: 1.1174 High: 1.1158 Low: 1.1171 Close: 1.1159

EUR/USD Technical

EUR/USD was flat in the Asian session and has edged lower in European trade

• 1.1120 is providing support
• 1.1212 is the next resistance line
• Current range: 1.1120 to 1.1212

Further levels in both directions:

• Below: 1.1120, 1.1046 and 1.0950
• Above: 1.1212, 1.1300, 1.1434 and 1.1553

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