The US dollar strengthened yesterday and is flat this morning. Beyond the issue of political risk in Germany, the dollar also gained against the yen. As USD/JPY is looking oversold, the pair is susceptible to a reversal. Tax reform remains a significant headwind for the dollar in the short-term. As Congress is currently on recess for Thanksgiving, the first debate on the tax bill will not take place until November 28. Our broader thoughts on the impact of the upcoming vote are outlined in a commentary we published last night. Trading will be light this week due to Thanksgiving holidays in the US. Our short-term outlook on the dollar remains neutral.
USD/JPY is currently trading just above 112.50. EUR/USD is flat today and currently just above 1.1740. The pound is up today, with GBP/USD currently above 1.3240.
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.