After ending down last Friday, the dollar is strengthening this morning. The big news today is the collapse of German coalition discussions after one of the parties pulled out of talks. As the euro weakens, the US dollar is rising in relative terms. Looking at other major currencies, the dollar is flat against the yen. Despite recent strength, the short-term outlook for the US dollar is cloudy thanks to the upcoming Senate tax vote. As Republicans can only afford to lose two votes in order to pass the tax bill, the vote remains a significant cause of uncertainty. We will downgrade our medium-term outlook on the dollar to bearish later today.
USD/JPY is currently trading just above 112.0. EUR/USD is down today and currently just above 1.1730. The pound is flat today, with GBP/USD currently above 1.3210.
This week, we’ll see economic data including existing home sales, durable goods, as well as Markit PMIs. On Tuesday we’ll get existing home sales and the Chicago Fed National Activity Index. On Wednesday, we’ll see initial jobless claims, durable goods and the University of Michigan consumer sentiment survey. On Thursday we’ll see FOMC minutes. Finally, on Friday we’ll get Markit PMIs. Last week CPI met estimates while Core CPI beat estimates.
After strengthening on recent weakness in the euro, we are upgrading the US dollar to neutral. Note 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 falls on tax-related disappointment, we are downgrading the US dollar to bearish. 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.