The US dollar ended flat yesterday and is weakening this morning. Thanks to falling US bond yields, the dollar is looking less attractive. The currency is especially weak against the yen, with USD/JPY now trading below 112. Looking at news, Yellen delivered a speech at New York University yesterday. While she reiterated that inflation was likely to rise in the future, she also said that she her forecast for higher inflation is "very uncertain". Given the Fed's poor track record in forecasting inflation, she raised the possibility of inflation remaining low for years to come. As rate hike expectations fall, the dollar is selling off as a result.
USD/JPY is currently trading just below 112.0. EUR/USD is up today and currently just above 1.1760. The pound is flat 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. Existing home sales beat forecasts (5.48m vs. 5.42m expected) while the Chicago Fed National Activity Index was higher the previous print (0.65). Later today, 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.