Weak economic data has pushed the US dollar lower but not by much as the market is still reeling off of this past Tuesday’s strong inflation report. As long as inflation remains high, the market believes that the Federal Reserve has little choice than to stick to their hawkish bias. The biggest weakness today was in the Philadelphia Fed index and even within that report prices paid six months forward are expected to increase. The sentiment of manufacturers in the Philadelphia region dropped to the weakest level since April 2003, but on an ISM adjusted basis, the index increased from 51.0 to 51.8 (adjusting for ISM means to use the same weighting scheme as the ISM index). Overall, there is no argument that the manufacturing sector remains weak, but it may not be as weak as today’s headline Philly Fed number indicates. In fact, employment increased in both the current conditions and expectations component of the report. The other disappointments this morning included a downward revision to third quarter GDP, a rise in jobless claims, softer personal consumption numbers and an unimpressive leading indicators report. Tomorrow we are expecting durable goods orders, personal income and the PCE deflator. With a sharp drop in orders in the month of October, a rebound is expected in November. Personal income should remain unchanged, while the PCE deflator, which is a measure of inflation, is expected to tick upwards. We continue to see no reason for the EUR/USD to break its recent 1.3050-1.3350 trading range.
Pretty good assesement don't you think? The low volatility will probably make it break out though. According to the COTR data the EUR is goin up. Next week should be a show. But then again it might be incredibly slow.
