The US dollar is mostly mixed today. While the currency is slightly lower against the euro and the British pound, the buck is higher against the Japanese yen. After failing to reach a deal on immigration and border security, Democrats and Republicans failed to extend funding for the US government last Friday. While leaders from both parties held talks yesterday, a deal is still out of reach. As the US government has now run out of funding, non-essential staff will be furloughed starting today. As US government shutdowns have occurred many times in recent history, reactions in markets are fairly limited. The shutdown will only become a broader concern if it continues for a long time. Looking at US government bonds, yields are falling this morning after 10-year bond yields rose beyond 2.60% last week. In recent history, rising bond yields have failed to have any meaningful impact on the currency. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is up today and currently trading above 110.80. EUR/USD is up and is trading above 1.2220. The pound is up, and GBP/USD is currently above 1.3860.
Looking at economic data this week, markets will be watching PMIs and Q4 GDP figures. Later today, we'll see the Chicago Fed National Activity Index. On Wednesday we'll see the housing price index and Markit PMIs (manufacturing, services and composite). On Thursday, we'll see initial jobless claims and new home sales. Finally on Friday, we'll get Q4 GDP and durable goods orders. Last week, industrial production figures exceeded consensus estimates by a large margin.
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.