Markets await Powell; Dollar unfazed from morning data dump and Fed Report

A wrath of US economic data had little impact on the US dollar early in New York as markets eagerly await Fed Chair Powell’s keynote speech at Economic Club of NY at 12:00 EST (17:00 GMT).   The market will be looking to see if the Chairman will validate the notion that US will see a slower path of growth or provide a hint of a change with the rate hike schedule.  Following the September meeting, the Fed’s dot plot targeted four more rate hikes through the end of next year, one at the December meeting and 3 more in 2019.  Investors however are pricing in one less rate hike in 2019.  Powell may keep things consistent, highlight being data dependent and not provide any major shifts of his stance on the economy or tightening schedule.

Yesterday, the dollar benefited from Fed Vice Chair Clarida’s comments that gradual rate hikes are appropriate, a slight shift from his dovish comments on November 16^th.

Morning Data:

The second reading on US Q3 GDP came in unrevised from the advance reading and in line with expectations at 3.5%.  The release highlighted “upward revisions to nonresidential fixed investment and private inventory investment were offset by downward revisions to personal consumption expenditures (PCE) and state and local government spending.”  The Fed’s preferred measure of inflation, PCE came in at 1.5%, slightly softer than the advance reading of 1.6%.  A hotter number could have provided the dollar with a boost.

The October reading for Advance Goods Trade Balance was a deficit of $77.2B, up $1.0 billion from September and slightly wider than analysts’ expectations.  Exports posted a decline of 0.6% to $140.5 billion, leading many to believe that the data can get much worse if no progress is made on the trade front.  Wholesale inventories for October, adjusted for seasonal variations but not for price changes rose 0.7% to $650.4 billion from September 2018, and were up 6.6% from October 2017.

At 10:00 AM EST (15:00 GMT) the November reading for Richmond Fed Manufacturing index came in slightly softer at 14, 1 point softer than both the analysts’ estimate and prior month’s reading.  The October New Home Sales, fell 8.9% to 544,000 reading, markets were expecting a 3.7% gain.

Fed Financial Stability Report

The Fed’s report noted that developments in domestic and international markets could pose near-term risks to the U.S. financial system. The ultimate effects of shocks arising from such developments likely depend on the vulnerabilities in the financial system identified in the previous sections of this report.  Regarding the financial system the release stated that the nation’s largest banks are strongly capitalized, and leverage of broker-dealers is substantially below pre-crisis levels. Insurance companies have also strengthened their financial position since the crisis.  Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and international financial markets and strains in institutions. Many analysts are interpreting the report as a cautionary note.

Price action on the EUR/USD 4-hour chart displays that the recent range trading from 1.1200 to 1.1550 has been firmly in place since mid-October.  The current four-day slide is tentatively finding support from the 1.1270 region.  Price is tentatively forming a bullish Gartley pattern.  Point D is targeted with the 78.6% Fibonacci retracement level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C move.  If valid, we could see a bullish bounce target the 1.1350 area.  If invalidated, deeper support could from the 1.1215 level.

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