The US dollar is sharply weaker this morning, and is selling off against most major currencies including the euro, the British pound and the yen. Looking at the US dollar index (a measure of the dollar against six major currencies), it is currently hovering at 3-year lows. Looking at futures data released last Friday, speculators continue to add to their short bets against the US dollar. As we have written before, the US dollar tends to weaken during global economic booms, and the current sell-off shows few signs of ending. While the dollar is looking oversold on a daily chart according to various technical indicators, the underlying conditions that are causing the bear market remain intact. Beyond a short-term relief rally, there are few reasons to be calling for a longer-term dollar rally today. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is down today and currently trading above 110.70. EUR/USD is up and is trading above 1.2210. The pound is up slightly, and GBP/USD is currently above 1.3740.
Looking at economic data this week, markets will be watching industrial production and housing-related data. On Wednesday, we'll see industrial production and capacity utilization. We'll also see the NAHB housing market index. On Thursday we'll see housing data including housing starts and building permits. We'll also get initial jobless claims and the Philly Fed survey. Last week, core CPI was slightly ahead of expectations.
Following the holiday season sell-off, we are downgrading the US dollar to bearish. 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.