Fed Chair Jerome Powell told Congress yesterday that the US economy is in a good place given the decline in trade uncertainty [after the phase one trade deal was signed between the US and China] and the stabilization of global growth. However, he did concede that there is a potential threat from the coronavirus.
“Good Place” Reflected in PMIs
The US Manufacturing PMI had been below 50 since September 2019. I.e. the manufacturing sector was contracting. Furthermore, the numbers were softer for the next four prints. However, the latest PMI number beat forecast and is above 50, indicating that the sector is now expanding. The ISM Non-Manufacturing Sector, arguably the more important of the two numbers, never broke below 50. However, the last print was also in excess of forecast and shows an uptrend in the series. This reflects an expansion in the services sector, which typically accounts for 80% of jobs in the US.
The PMIs will be a good series to keep track of how and if the coronavirus does negatively impact the US economy.
USDOLLAR Reflects US Strength
The left chart shows the greenback on a daily schedule. Last week saw an appreciation of 0.88% on the FXCM USDOLLAR index and a move that exceeded its 5-week average true range by over 50%. Given this, the pullback over the last 2 days is not a surprise. Nevertheless, the daily index is above its black 20-day simple moving average (SMA) and the SMA is still pointing up. Moreover the RSI is above 50 (blue rectangle) denoting a bullish undercurrent.
The right chart shows the USDOLLAR hourly time frame. Here, we see that the index has pulled back to its S1 pivot support. This level coincides with a 38.2% retracement level of the last impulse up as well as price support (green shaded horizontal). As such there is a fairly strong confluence at currerent levels which may be attractive to USDollar bulls.
Today will see the Fed Chair testifying in front of the Senate Banking Committee, which may prove to be more inquisitive then yesterdays House Financial Services Comittee. It may very well cause an increase in volatility but it will be truly interesting to see if the confluence of support holds.