Despite good economic data, rising long-term US bond yields and hopes for a new Fed Chair, the dollar ended down yesterday and continues to sell off this morning. Yesterday saw very strong durable goods orders and new home sales figures, suggesting that economic growth remains strong this year. The dollar has been particularly weak against the euro, the pound and the yen and is down against those currencies in relative terms. The pound is strengthening following good GDP growth figures, while the euro is strengthening on hopes for today's ECB meeting. Looking at political news, Reuters is reporting that a senior White House official claimed that Trump was unlikely to pick Gary Cohn to be the next Fed Chair due to his role in tax reforms. Trump has claimed that while Yellen is "terrific", he would like to make his "own mark" when selecting the future Chair. This means that Powell and Taylor are the leading candidates for the role.
USD/JPY fell below 114 yesterday and is currently trading closer to 113.40. EUR/USD is now above 1.18 and is currently trading just below 1.1830. The pound rose sharply yesterday following good GDP figures, with GBP/USD currently above 1.3270.
This is a critical week for economic data relating to the US dollar. Manufacturing PMIs (54.5 vs. 53.5 expected) and services PMIs (55.9 vs. 55.6 expected) both beat expectations. Durable goods orders were very strong (2.2% vs. 1% expected) while new home sales (0.67m vs. 0.56m expected) also beat expectations. Later today, we'll get pending home sales as well as continuing and new jobless claims. Finally, on Friday, we'll see all-important Q3 GDP numbers and Q3 Core PCE figures (Core PCE is the Fed's preferred measure of inflation). Expectations are high for good numbers this week. Strong growth data will continue to support the dollar and future rate hike expectations.
After rising in the latter half of October, the dollar is now taking a breather. As such, we are downgrading the short-term outlook to neutral. In early October, 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.
Thanks to progress in enacting Trump's tax reforms, the US dollar has been strengthening since mid-October. The currency has also been supported by rising bond yields as Trump looks set to select the next Federal Reserve Chair. As such, we are upgrading our medium-term outlook on the dollar back to bullish. After looking oversold in early October, the dollar is now trading within normal conditions. This is based on technical indicators when looking at a weekly chart.