The US dollar spiked yesterday morning, but was lower by the end of the day. This morning, the currency is making modest gains. As the Senate and House versions of the tax bill need to be reconciled, markets are tempering their expectations for tax cuts accordingly. If the ongoing negotiations move in the right direction, the US dollar is likely to strengthen further. Looking at recent economic data, both durable goods and factory orders missed expectations. While US economic growth remains strong, weak inflation has weighed on the currency. Our medium-term outlook on the dollar remains neutral.
USD/JPY is up and currently trading just above 112.60. EUR/USD is flat today and currently just above 1.1860. The pound is down, with GBP/USD currently above 1.3440.
This week, we’ll see economic events including PMIs, nonfarm payrolls, and the US debt ceiling deadline. Month-over-month factory orders (-0.1% vs. -0.4% expected) and durable goods (-0.8%) were fairly weak. Later today, we’ll see Markit Services and Composite PMIs. We’ll also see ISM Non-Manufacturing PMIs. On Wednesday we’ll get ADP jobs and nonfarm productivity. On Thursday we’ll get initial jobless claims and consumer credit. The most important day next week is Friday. On that day, we’ll get nonfarm payrolls and find out if Congress is able to extend the debt limit. Last week, the Senate passed the tax bill, helping to stoke future inflation expectations.
Following doubts regarding Trump's ability to get the tax bill through Congress, we downgrading the dollar to bearish. Note that the currency is trading within normal conditions 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 rebounds from its lows in early September, we are upgrading 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.