The US dollar fell sharply yesterday, as doubts regarding tax reforms and strength in the euro resurfaced. Looking at tax news, House Ways and Means Committee Chairman Kevin Brady spoke out against the Senate's plans to completely eliminate the SALT deduction according to a report from Reuters. Given the significant differences between the House and the Senate tax plans, this is bad news for the dollar. Looking at Europe, strong economic data has led to euro strength in recent days. As we wrote in late October, euro trading will be led by economic data and politics now that ECB-related expectations are in the background. This morning, we lowered our short-term outlook on the US dollar to bearish.
USD/JPY is currently trading just above 113.10. EUR/USD was up sharply yesterday and remains flat this morning. The exchange rate is currently just above 1.1790. The pound was up yesterday, with GBP/USD currently above 1.3150.
This week’s economic data includes the consumer price index, retail sales numbers and other figures. PPI numbers beat expectations by a wide margin (2.8% vs. 2.4% expected). Later today we’ll get the most important figures for the week including both retail sales and CPI numbers. On Thursday we’ll see jobless claims, capacity utilization, Philly Fed manufacturing and industrial production for October. Finally on Friday, we’ll see the NAHB Housing Market Index, and housing/building starts. Last week, jobless claims missed expectations.
As the dollar falls on tax-related disappointment, we are downgrading the US dollar to bearish. The caveat is that the currency is looking oversold in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
As the dollar runs out of steam after the draft tax plans were published, we are downgrading the US dollar to neutral. The currency is neither overbought nor oversold today, and trades within a normal range. This is based on technical indicators when looking at a weekly chart.