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EUR/USD Daily Technical Analysis for February 19, 2018

The EUR/USD attempted to break out but was unable to gain enough traction to push above the January highs at 1.2537, and reversed course following stronger than expected U.S. data. German wholesale price inflation rose more than expected after a sharp decline in December.

German wholesale price inflation rose to 2.0% year over year in January, from 1.8% year over year in the previous month. The rebound after the sharp decline in December, backs our view that HICP will also move higher again in coming months and add to the arguments of the growing number of ECB council members opting for an end to net asset purchases.

U.S. Reports Surprised to the Upside

U.S. reports revealed an array of upside surprises that lifted prospects for both Q4 and Q1. There was a big January gains for housing starts and permits after a small December starts boost, with January strength skewed toward multi-family units and the northeast, and with strength in units under construction. The January trade price report beat estimates with strength in core prices and ex-agricultural export prices in particular, alongside the expected big gain in oil import prices. Trade price firmness accompanies strength in the CPI, PPI and hourly earnings to feed a market narrative that exaggerates the inflation risk. There was a Michigan sentiment bounce to 99.9 that marked the second strongest reading in 13 years, leaving a gain that closes the gap to stronger confidence readings from other surveys. The QSS service sector data beat estimates to imply a boost for Q4 GDP.

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Cleveland Fed Inflation Nowcast for February CPI projects a 0.16% headline increase, along with a 0.15% gain for the core. Additionally, it shows a 0.39% jump for January PCE, with the core up 0.33%, though February is estimated at 0.13% for both measures. On year over year basis, February CPI is projected at 2.18% year over year, versus the 2.1% year over year from January, with the core seen at 1.79% year over year versus last month’s 1.8%. The 12-month PCE is forecast rising at a 1.67% year over year rate in January and 1.69% year over year in February, with the core up 1.57% year over year and 1.53%, respectively. The Cleveland Fed says its model has done quite well, and in many cases better than alternative models. Such results suggest maybe price pressures aren’t accelerating to the extent the markets current fear.

New ECB Seats are Up for Grabs

Ireland’s Lane and Spain’s Guindos are in the running for the post of ECB vice-president that will become vacant at the end of May, when Constancio’s term ends. In theory, the appointment is based on merit, rather than nationality, but with three more Executive Board positions, including the presidency, up for grabs in 2019, clearly political considerations will play a role. With that in mind Guindos is looking like the front runner, but Lane together with Estonia’s Hansson, could be in the running next year for Praet’s position of “chief economist” or even Draghi’s Presidency, if officials are looking for a compromise alternative to current favorite Weidmann. Either way, even if the new Vice-President should join the dovish camp, we are likely to see more hawks at the top at a time when the ECB will have to start thinking about reducing its balance sheet.

After the two candidates for the post of ECB Vice President presented to EU Parliament deputies this week, the Eurogroup is expected to agree on a candidate on February 19, before the official nomination through the wider Ecofin and the final appointment by EU leaders. Constancio’s term ends at the end of May this year, Nouy, the head of the ECB’s Supervisory board ends will have to be replaced in December, but the real overhaul of the Executive Board will take place next hear when a further three executive board positions, including Draghi’s will become vacant.

Draghi’s promise to do “whatever it takes” navigated the ECB through a time of ultra-loose monetary policy and repeated risks of a deepening debt crisis. When it comes to tightening a hawkish central bank head will have more credibility and may in fact be able to achieve more with verbal intervention than Draghi could. Lane and in particular Hansson may be equally credible as ECB head, but maybe even more influential in Praet’s position.

Kuroda officially nominated for second term as BoJ governor. As widely expected Abe nominated Kuroda to stay another five years and reports that Waseda University professor Wakatabe, along with BoJ Executive Director Amamiya, will take the deputy governor roles were also confirmed. The nominations were sent to the steering committee of parliament’s lower house and will have to be confirmed by both houses of parliament. Wakatabe is known for advocating “bolder monetary easing” and Amamiya has worked closely with Kuroda.

This article was originally posted on FX Empire

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