The US dollar is slightly stronger this morning, and appears to have broken out of its weakening pattern. We upgraded our short-term outlook on the dollar to neutral earlier today. The dollar's move up is impressive considering lower-than-expected retail sales growth and consumer price index figures last Friday. The dollar is particularly strong against the euro, which is weakening thanks to ongoing concerns regarding Catalonia and the recent elections in Austria. In political news, reports of Trump playing golf with Senator Rand Paul and calling on Senate Majority Leader Mitch McConell are helping expectations regarding tax reforms. Trump appears to be building more support among Republicans for his tax bill.
USD/JPY sold off last Friday and is down again this morning. The exchange rate is currently just below 111.70. EUR/USD is down again today after selling off last Friday, with the pair currently below 1.1790. The pound is one of the few currencies up against the dollar, with GBP/USD currently above 1.330.
This week is a relatively light week for the US dollar. On Tuesday, we’ll get industrial production figures. On Wednesday, we’ll see building permits, housing starts and the Fed’s Beige Book survey. On Thursday we’ll get initial and continuing jobless claims. Finally, on Friday we’ll see existing home sales. Last week, both CPI and retail sales missed expectations, driving down expectations of Q3 growth and inflation.
After falling sharply in the second week of October, we are downgrading the US dollar to neutral. Thanks to rising doubts regarding Trump's ability to get tax reforms through Congress and strong performance in the euro and the Chinese yuan, the US dollar is broadly weakening. While the currency remains in oversold conditions in the medium-term, the dollar bull market that was intact since early September is now taking a breather.