After rising yesterday, the US dollar is weaker this morning thanks to concerns regarding progress on tax reforms and a possible US government shutdown this coming Friday. Yesterday, we published our broader thoughts on the dollar, arguing that the dollar is likely to remain subdued until a bigger catalyst can push inflation expectations higher. Looking at news, the House voted to begin the negotiation process with the Senate in order to reconcile the differences between the two tax bills. The Senate is expected to vote on the matter later this week. As the US government budget is set to run out this Friday, the threat of a possible shutdown is also weighing on the currency. Our medium-term outlook on the dollar remains neutral.
USD/JPY is down and currently trading just above 112.20. EUR/USD is up today and currently just above 1.1830. The pound is down, with GBP/USD currently above 1.3410.
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. Markit Composite PMIs (54.5 vs. 55.2 prior) were lower than the previous print. ISM Non-Manufacturing PMIs (57.4 vs. 59 expected) were lower than expectations. The trade balance (-48.7b vs. -47.5b expected) was also worse than expected. Later today, 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.