Yesterday, the dollar started the day weak, but rose in the latter half of the day and ended flat. Today the currency continues to trade sideways. The most important factor for the dollar today is the upcoming House tax vote. While Republicans have a majority in the House, the tax bill is contentious as it eliminates many deductions. Thus taxes are set to rise for many, despite Trump's insistence on broadly cutting taxes. Our broader thoughts on the tax bill are outlined in a recent commentary. In other news, the Wall Street Journal is reporting that Senator Ron Johnson is opposed to the Senate tax bill. According to the story, he believes the bill unfairly benefits corporations over smaller businesses. As Republicans have a much slimmer majority in the Senate, his opposition to the bill is a significant issue. While our short-term outlook remains bearish, the caveat is that the dollar continues to look oversold.
USD/JPY is currently trading just above 113.10. EUR/USD ended the day down yesterday and remains flat this morning. The exchange rate is currently just above 1.1780. The pound was flat yesterday, with GBP/USD currently above 1.3160.
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). CPI met expectations (2%) while Core CPI exceeded estimates (1.8% vs. 1.7% expected). Month-over-month retail sales also beat estimates (0.2% vs. 0.0% expected). Later today, 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.