Euro futures were able to gain traction on Thursday as weaker than expected U.S. GDP data combined with an increase in U.S. jobless claims reduced U..S interest rates and weighted on the dollar. An increase in EU consumer confidence helped the Euro gain traction despite continued weakness in the French labor market.
Despite interest rate differentials that have been favor the dollar, the Euro turned higher on Thursday, poised to test trend line resistance created by a downward sloping trend line that comes in near 1.31. A close above this downward sloping trend line could ignite a test of resistance near the May highs at 1.3250. Support on the June 2013 Euro futures contract is seen near the 20-day moving average at 1.2970 (chart courtesy of forextraining.co.uk) .
The trend on the futures contract is higher as seen by the recent crossover by the 5-day moving average above the 20-day moving average. This crossover has historically shown that a short term trend is in place. Momentum on the June futures contract is beginning to move higher with the MACD index moving from negative to positive territory. The RSI (relative strength index) is also moving higher confirming the recent uptick on futures prices but still printing near 54 which is in the middle of the neutral range for the RSI.
A number of data points including Euro zone confidence were mixed on Thursday. EU consumer confidence climbed to 89.4 in May from 88.6 in April. French April employment data showed that Job-seekers climbed from 30k vs. 36.9k rise in March. Spanish first quarter GDP was unchanged from the initial report at -2.0% year over year, and May preliminary CPI was a higher than expected 1.8% year over year vs. 1.5% year over year in April.
U.S. data was less than stellar generating headwinds for US yields. First quarter GDP was revised slightly lower to 2.4% compared to the initial print of 2.5% and the 2.5% expected by economists. Although the consumer continues to drive growth, notching up a 3.4% gain, government spending moved lower and was down 4.9%, creating a drag on growth. It is clear that the sequester is a negative to growth as it is difficult to simultaneously employ austerity while an economy is attempting to grow out of a recession. The fiscal measures agreed upon by congress and President Barack Obama are hurting growth prospects while at the same time reducing debt and the US current account deficit.
On the employment front, the Department of Labor released initial jobless claims that came in worse than expected. Next week the BLS will be releasing its report on non-farm payrolls after ADP releases its report on private payrolls. The claims data during May has been fair at best and does not reflect an economy that is gaining momentum. According to the BLS jobless claims increased by 10K to 350K in the week ending May 18, more than the 3K increase in claims expected by economists. Continuing unemployment jobless claims, increased by 63,000 to 2,986,000 in the week ended May 18. The increasing level of claims does not bode well for a strong employment report next week.