EURUSD back at 1.14 after US and German data

Summary:

• US GDP tops estimates (+2.6% Q/Q vs +2.2% exp)

• German inflation figures little changed

• EURUSD pulls back from 3-week high above 1.14

The world’s largest economy grew faster than expected in the final quarter of 2018, in what is a solid data point and has caused the US dollar to perk up. US Advance GDP Q/Q came in at an annualised rate of 2.6% compared to a forecast 2.2%, down from 3.4% previously. While this is a fair sized drop, which actually appears a little worse when you consider the prior reading was also revised down from 3.5% it does still top the median estimate.

While US GDP fell in the final quarter of last year, the drop was smaller than expected and the composition of the growth remains fairly solid. Source: XTB Macrobond

Looking at the composition of the growth, on the whole this too is pretty pleasing with personal consumption solid if not spectacular, while the rise in capex was above what most economists had expected. Net exports were also not as bad as feared and an unexpected small boost in inventories contributed to what is, all in all, a solid data point. Having said that there are a couple of mitigating factors worth bearing in mind, with the better than expected net exports and inventory figures possibly susceptible to downward revisions - or being pushed into Q1 of this year - while it should also be noted that the report has been delayed by around a month due to the government shutdown. Because of this the lag is significant and more recent economic data from around the globe suggest that activity may be slowing - something that would obviously weigh on USD growth in the future.   

Shortly before the US GDP was release there was the latest look at German inflationary pressures with the preliminary CPI for February bouncing back higher than expected to +0.5% M/M. This was above the median forecast of +0.4% and well above the prior -0.8%. However, due to the short term nature of this, fluctuations are fairly common but a Y/Y read delivered a similar message. CPI Y/Y increased by 1.6% vs 1.5% expected, up from a prior reading of 1.4%. While this is mildly positive for the Euro, the core HICP reading in Y/Y terms was unchanged as expected at 1.7%, and in M/M terms actually missed forecasts (+0.5% vs +0.6% exp and -1.0% prior).    

The German inflation figures in year-on-year terms rose this month and price pressures in the country remain above the Eurozone average. Source: XTB Macrobond

The EURUSD had reached its highest level since the start of February around lunchtime and moved above the 1.14 handle, but the pair has since fallen back as the US dollar rose in response to the GDP data. Price had made an attempted break above the 61.8% Fib at 1.1407, but this now looks like it could be a false breakout with a pretty firm rejection seen in the last closed H1 candle. The market has been recovering well after fall to 1.1234 a couple of weeks back but if it can’t make a move above these highs stick, then we could be in for another push towards the lower end of the recent range which has contained price since October.   

The EURUSD saw a break above the 61.8% fib at 1.1407 stopped in its tracks after the better than expected US GDP numbers. Source: xStation