Strong Claims Data Boosts Dollar, as Euro Momentum Turns Negative


The Euro edged higher after making a new trend low following a stronger than expected US jobless claims report. Growth in the EU is likely to be modest next year, but should be propped up by private consumption, which will help to compensate for the challenging external environment. The ECB is heading for QE in an attempt to give further support to countries such as Italy and France, but this will not solve the problem of mounting debt level in the long run.

U.S. initial jobless claims fell 9k to 280k in the week ended December 20, from 289k previously. This is the lowest level in 7 weeks and claims have held below 300k in every week but one since September 6. The 4-week moving average slid to 290.25 from the prior 298.75k. Continuing claims rose 25k to 2,403k in the week ended December 13 after dropping 142k to 2,378k in the prior week.

External forces will likely be the impetus that drains on EU growth. Russia’s subsequent financial crisis and the deterioration of economic conditions will likely mean a further decline in exports in 2015. The fall in oil prices, which cuts Europe’s nominal import bill, has helped to gloss over the impact on trade numbers so far and the current account continues to post healthy surpluses, although the latter is also a sign of Europe’s anemic investment.

Overall the Eurozone is heading for modest growth and low inflation. The ECB may be starting to purchase corporate and government bonds, but that is unlikely to have a decisive impact on inflation or growth, especially if oil prices remain weak. It will help indebted companies and governments, especially in France and Italy, but at the same time further reduce the pressure on officials to concentrate on reforms to boost longer term growth potentials.

Momentum on the currency pair has turned negative as the MACD (moving average convergence divergence) index has generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.

The post Strong Claims Data Boosts Dollar, as Euro Momentum Turns Negative appeared first on Forex Circles.

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