Daily Forex Signals 19.05.2017

EUR/USD outlook remains bullish

Macroeconomic overview: U.S. Labor Department said initial claims for state unemployment benefits decreased 4k to a seasonally adjusted 232k for the week ended May 13, declining for three consecutive weeks.

Claims have now been below 300k, a threshold associated with a healthy labor market, for 115 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the unemployment rate at a 10-year low of 4.4%.

The number of people still receiving benefits after an initial week of aid dropped 22k to 1.90 million in the week ended May 6, the lowest level since November 1988.

Last week's claims data covered the survey week for May's nonfarm payrolls. Claims fell 11k between the April and May survey periods suggesting further employment gains this month. The economy created 211k jobs in April.

Labor market strength could allow the Fed to raise rates at its June 13-14 policy meeting. The U.S. central bank increased borrowing costs in March and has signaled two more rate hikes for 2017.

Expectations of further monetary policy tightening have also been underpinned by data on inflation, retail sales and industrial production which suggested economic growth picked up early in the second quarter.

In a separate report, the Philadelphia Fed said its index for current manufacturing activity in the mid-Atlantic region jumped to a reading of 38.8 this month from 22.0 in April, recovering some of the declines of the previous two months. In a third report, the Conference Board said its leading economic index rose 0.3% in April after a similar gain in March.

Cleveland Federal Reserve Bank President Loretta Mester, who is not a voter this year on policy, on Thursday repeated her call for further U.S.-interest rate hikes now that the economy has reached full employment and inflation is nearing the Fed's 2% goal. She said she is comfortable with the Fed beginning to trim its $4.5 trillion balance sheet this year, and that once the Fed has detailed its plan to reduce its holdings, it should stick to the plan and rely only on short-term rate policy to manage its response to changing economic conditions.

But a stock market sell-off, if sustained, amid uncertainty over Trump's political future could jeopardize further rate increases. Financial markets are pricing in a roughly 69% chance of a 25-basis-point hike at the Fed's June meeting, down from 78.5% on Tuesday.

ECB policymaker Vitas Vasiliauskas said the European Central Bank should start reviewing its pledge for continued, ultra-easy policy if economic data confirms the rebound in inflation is here to stay. Vasiliauskas dismissed an argument that interest rates could start rising before the end of asset buys, sticking with the ECB's pledge to end bond purchases first and only then touch interest rates.

ECB Governing Council member Jens Weidmann said that political risks for the Eurozone and its economy are lower following the presidential election in France. He repeated his stance that the ECB should think about winding down stimulus.

Technical analysis: Yesterday’s corrective move was stopped above weekly cloud top at 1.1067 and above 7-day exponential moving average. This together with further rise today may signal a continuation of upward move next week. The 61.8% fibo of May 2016-January 2017 drop has been broken and the next target is 76.4% fibo at 1.1313.

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