After selling off yesterday, the US dollar is mostly flat this morning. Looking at dollar pairs, the currency has been the strongest against the Japanese yen thanks to increasing US bond yields. On the other hand, USD has been fairly weak against the euro. Looking at news, the US House of Representatives gave final approval on the tax bill following a Senate vote. According to Bloomberg, President Trump is expected to sign the bill into law on January 3. With tax cuts out of the way, US dollar trading will likely be driven by inflation and monetary policy expectations. As we have written before, we believe the dollar is likely to sell off thanks to the weak outlook for inflation. We will downgrade our short-term outlook on the dollar to neutral today. Our medium-term outlook remains neutral.
USD/JPY is flat today and currently trading just above 113.40. EUR/USD is flat and currently just above 1.1860. The pound is flat, with GBP/USD currently above 1.3360.
This is a reasonably light week for the US dollar in terms of economic data and events. New building permits (1.3m vs. 1.27m expected) and housing starts (1.3m vs. 1.27m expected) were better than expected. The current account deficit was smaller than expected (-100.6b vs. -116.8b expected). Existing home sales beat expectations (5.8m vs. 5.5m expected). Today is the most important day. We’ll see Q3 Core PCE, GDP growth, initial jobless claims and the Philly Fed Manufacturing Survey. On Friday we’ll see November Core PCE, durable goods, and new home sales. Last week, Core CPI missed expectations and the Fed signaled a continuation of the status quo.
As the dollar weakens on the poor inflation outlook, we are downgrading the dollar to neutral. 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.