Big Beat for Empire State EUR/USD sub 1.0800

EUR/USD, H1

Today’s Empire State Index rose sharply to 12.9 in February from 4.8, leaving the two highest readings since the 14.4 figure last May. Big component gains allowed the ISM-adjusted Empire State to rise to a 15-month high of a lofty 56.8 from 51.7. New orders surged to a 29-month high of 22.1 from 6.6, while shipments popped to a 15-month high of 18.9 from 8.6, though we saw drops to 6-month lows for the two labor market components, to 6.6 from 9.0 for jobs, and to -1.0 from 1.3 for the workweek. Today’s big climb follows an updraft in most of the major sentiment surveys through January from the phase-one deal, less Brexit uncertainty, and the ongoing vehicle sector recovery from the UAW-GM strike. Sentiment in January defied headwinds from Boeing’s 737 MAX production halt, and today’s data suggests that the February reports will dodge this headwind again. Any impact of the Covid-19 outbreak is obviously absent in today’s figures as well. We expect the ISM-adjusted average of the major sentiment surveys to slip back to the 53 area in February after a January pop to 54 from 51 in November and December, versus a 52-53 range over the five months through October.

The Dollar rallied after the much stronger Empire State Index, taking EURUSD to new 34 month lows of 1.07847 from near 1.0815, with USDJPY up to 109.90. As we pointed out last week, the EUR bias remains in place: “below there (1.0820) is the daily lower channel at 1.0750.  In the the longer term the 161.8 Fibonacci extension level from the Q419 rally is at 1.0650 and then the psychological 1.0500. The Q419, against the trend, re-trace rally came from this over extension from the 200-day moving average which is where we are now, so some retrace to possibly the 1.1050-75 zone could be expected.”