Disappointing US data barely moves EURUSD, Bullard says Fed is more hawkish than markets

Summary:

• Durable goods data came in weaker than expected

• Bullard says markets are more dovish than Fed

• EURUSD trades a notch below the 1.16 handle

• Powell to deliver speech at 3:00 pm BST

The final data print from the US economy has been already released. However, it does not bode well for the US dollar as the durable goods orders shrinked more than expected. James Bullard said that Fed needs to be cautious as its hawkishness actually exceed the one of the markets. EURUSD still remains below the 1.1600 handle.While on the monthly basis data came in weaker-than-expected, durable goods orders actual ticked higher in YoY terms. Source: Macrobond, XTB Research

The preliminary release of the July’s durable goods orders data can be named a disappointment. Namely, the headline reading was expected to show a 1% decline in MoM terms while the actual data showed a 1.7% drop. The core gauge (excluding transportation) also missed the forecast of 0.5% MoM increase by showing just a 0.2% MoM advance. Additionally the previous headline reading was revised lower from 0.8% MoM to 0.7% MoM while the core reading was revised from 0.2% MoM to 0.1% MoM. This is another reading after yesterday’s PMI hinting at smaller business activity in the manufacturing sector. If this is confirmed by the ISM reading in two weeks questions about the US economy ability to maintain current growth rate may arise.

Apart from that, it is worth to mention remarks concerning the economy and monetary policy expressed by James Bullard during the interview on CNBC. The President of St. Louis Fed said that the US economy is having a good year but growth may slow in 2019 and 2020. He added that in his opinion the long-term potential growth may be around 2%. He also addressed the concerns over the yield curve inversion by saying that there is no need to take on the yield curve and that the market outlook results in flatter curve. Asked about the sluggish wage growth he claimed that it is being limited by the lacklustre productivity. Moreover, Bullard does not see much inflationary pressure in the US economy. What one may find interesting is that the central banker recognized that Fed is at the moment more hawkish than markets are and because of that the Reserve needs to be careful in conducting its monetary policy.

EURUSD moved higher in a knee-jerk move but the scale was insignificant. Source: xStation5

EURUSD responded to the data by rushing higher in a knee-jerk move. However, after dozen or so minutes the gain was erased. The main currency pair managed to recoup almost all of the losses accounted yesterday and may be set to perform another intraday test of the 1.16 handle. Do notice that the pair still trades near the lower limit of the consolidation range from June and July, and unless the 1.1620 handle is breached the the upside potential seems limited. EURUSD traders should stay cautious around 3:00 pm BST as Fed Chair Powell will step in to deliver his speech during the annual Jackson Hole symposium. The central banker will discuss monetary policy in the changing economic environment.