Why today's Philly Fed report is not as strong as it seems
Today's figures from the Philadelphia Federal Reserve appear bullish at first glance, but a closer examination reveals some mixed signals amidst a decidedly end-of-cycle overall tone.
Summary: Wilting equities and rising yields have soured the mood and turned FX traders slightly risk averse.
Wall Street is teetering. Traders are not amused by the rally in US Treasury yields which jumped 1.9% since yesterday (10-year and 30-year). The Dow Jones Industrial Average (DJIA) and S&P 500 are down about 0.67% as of 14:00 GMT while the NASDAQ lost 0.84%
The slump in equity markets shifted FX traders to mildly risk averse. The US dollar has rebounded from opening losses and as of 14:00 GMT, posted gains against all the G-10 major currencies except the Japanese yen which is flat.
President Trump can take a bit of credit for the greenback’s gains. He turned his attention back to Mexico and immigration, tweeting: “ ...In addition to stopping all payments to these countries, which seem to have almost no control over their population, I must, in the strongest of terms, ask Mexico to stop this onslaught - and if unable to do so I will call up the U.S. Military and CLOSE OUR SOUTHERN BORDER!.. then following with this: ....The assault on our country at our Southern Border, including the Criminal elements and DRUGS pouring in, is far more important to me, as President, than Trade or the USMCA. Hopefully, Mexico will stop this onslaught at their Northern Border. All Democrats fault for weak laws!"
This morning’s FX moves should be taken with a grain of salt. Today’s Philadelphia Fed Manufacturing Survey is unchanged from September (Actual 22.2) while Initial Jobless Claims were a tad better than forecast. The US economy is booming, so the reports are supposed to be strong. The American economic calendar is empty on Friday, which suggests tomorrows Chinese GDP, Retail Sales and Industrial Production data may be the FX driver.
This morning’s US dollar rally has taken the bloom off the rose for AUDUSD. The post-employment report gains are fading after resistance stalled the rally at 0.7150 which is guarding June downtrend line resistance which comes into play at 0.7200. Weak China data combined with the bullish US interest rate outlook could lead to a retest of support at 0.7040.