After strengthening yesterday, the US dollar is weakening this morning. Looking at the latest news, Reuters is reporting that two more Republican Senators have spoken out against the tax bill. Marco Rubio and Mike Lee are pushing for expanding child tax credits. Other GOP Senators including Susan Collins have been non-committal regarding the bill, especially with regards to proposed changes to Obamacare. As Republicans hold just 52 out of 100 seats in the Senate, there are doubts regarding the GOP's ability to get the bill through Congress. While last-minute negotiations are typical in any political process, markets tend to dislike uncertainty. If and when the bill passes, the dollar is likely to enjoy at least a small rally as tax-related uncertainty dissipates. Our medium-term outlook on the dollar remains neutral.
USD/JPY is down today and currently trading just above 112.20. EUR/USD is up slightly today and currently just above 1.1780. The pound is up slightly, with GBP/USD currently above 1.3440.
This is a big week for the US dollar in economic data and events. PPI (producer prices) was stronger than expected (3.1% vs. 2.9% expected). While November CPI met expectations (2.2%), Core CPI missed expectations (1.7% vs. 1.8% expected). The Fed maintained its outlook for three rate hikes in both 2018 and 2019. Retail sales beat expectations (0.8% vs. 0.3% expected). Markit services PMIs were weaker than expected (52.4 vs. 55) while Markit manufacturing was stronger than expected (55 vs. 54 expected). Later today, we’ll see industrial production and capacity utilization. Last week, nonfarm payrolls beat expectations while wage growth disappointed.
As the dollar strengthens on higher inflation figures and rate hike hopes, we are upgrading the dollar to bullish. 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.