USD Daily Updates

18 October 2017

The US dollar is now up for three days in a row. Yesterday saw rising bond yields as expectations for another rate hike in December are now at 90%. News from Washington is also helping the dollar, as more Republican senators have now publicly supported Trump's tax reforms.  John McCain endorsed the tax reform plans last night, stating "I support the Senate budget resolution because it provides a path forward on tax reform." Other Republicans who had previously threatened to derail tax reforms now also appear to be on board. These include Bob Corker, Lisa Murkowski and Susan Collins. As expectations rise for tax reforms, the dollar is likely to keep strengthening on further inflation and rate hike expectations. 

USD/JPY just crossed 112.50 earlier today, and is now trading just above 112.50. EUR/USD is flat this morning after selling off yesterday, with the pair currently below 1.1770. The pound was down sharply yesterday and continues to weaken this morning, with GBP/USD currently below 1.3180.  

This week is a relatively light week for the US dollar. Tuesday's industrial production figures (0.3%) met estimates while export (0.8%) and import prices (0.7%) beat expectations. Today, 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.

Short term outlook

Following increasing odds that John Taylor may be the next Fed Chair, the dollar is now strengthening. As such, we are now upgrading our outlook on the currency to bullish. Earlier, we warned that the dollar looked overbought in the short-term time frame. After weakening recently, the currency is now trading within normal conditions. Our analysis is based on various technical indicators. 


Medium term outlook

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.