Mixed manufacturing data and Powell testimony provides little to help traders

An odd mix of readings of US manufacturing data was released earlier today.  The NY Empire State Manufacturing Index for July was 43 vs 18 expected and 17.4 in July.  Compare that to the Fed Manufacturing Index for the city at the opposite of the New Jersey turnpike, Philadelphia, and it paints a different picture.  The reading was 21.9 for July vs 29 expected and 30.7 in June.  The New York manufacturing index was the highest on record, with all components stronger except for delivery times.  However, the Philly Fed manufacturing index dropped for the 4^th consecutive month to its lowest reading since December 2020.  The prices paid component fell to 69.7 vs 80.7 in June.  The geographic areas are so close, yet the divergence between the two prints couldn’t be farther apart!   

What are economic indicators?

That raises the question:  Which index is likely to continue with its current trend?  Other data released today shows that both import and export prices decreased for June.  In addition, Industrial Production for June was 0.4% MoM vs 0.7% MoM for May and Manufacturing Production for June was -0.1% MoM vs 0.9% MoM in May.  Based on this data, along with Powell’s extreme dovishness, it seems that the Philadelphia Fed Manufacturing Index may be leading the NY Empire State Manufacturing Index and that the latter index may turn lower soon.

Everything you need to know about the Federal Reserve

The DXY was unfazed by the data, choosing to focus on the befuddling testimony of Fed Chairman Powell, in which he continued to emphasize that current inflation is transitory.  He was extremely dovish, leaving traders more confused than before as to the timing of the announcement of any tapering decisions.  Traders may want to trade the ranges in the DXY until price breaks though either side.  The bottom trendline of the range crosses near 92.15.  Horizontal support below there from the June 23 lows is at 91.51.  Resistance is at the top trendline near 92.83, then the highs from March 31^st at 93.40.

Source: Tradingview, City Index

Traders could also look to range trade the EUR/USD, which has similar but opposite characteristics as the DXY. The bottom trendline is near 1.1750, with the March 31^st lows below at 1.1702.  Resistance is at the top end of the range, near 1.1870, followed by horizontal resistance from the highs on June 25^th near 1.1975.

Source: Tradingview, City Index

One thing that seems to stand out after Powell’s testimony is that inflation won’t be a major contributor in the Fed’s decision as to when they should announce that they will begin tapering.  More specifically, watch employment data and wages.

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