The US dollar rose yesterday and is strengthening again this morning. The US dollar is stronger against all major currencies including the euro, yen, the pound and commodity currencies such as the Australian dollar and the Canadian dollar. The currency is stronger in spite of a potential government debt ceiling this coming Friday. Instead, markets are optimistic that House and Senate Republicans will be able to come to a compromise and deliver wide-ranging tax cuts. Looking at the latest news from Bloomberg, proposals being discussed include higher corporate tax rates and retaining the SALT deduction. The currency was also supported by ADP jobs numbers released last night, which were stronger than expected. Nonfarm payrolls numbers are scheduled to be announced on Friday. Our medium-term outlook on the dollar remains neutral.
USD/JPY is up and currently trading just above 112.50. EUR/USD is flat today and currently just above 1.1780. The pound is down, with GBP/USD currently above 1.3370.
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. ADP jobs were higher than expected (190k vs. 185k expected) while nonfarm productivity was worse than estimates (3% vs. 3.3% expected). Later today, 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.