The US dollar fell sharply yesterday and continues to slide today. The currency is weaker against all major peers including the euro, the yen and the British pound. Looking at recent news, US Treasury Secretary Mnuchin claimed that "obviously a weaker dollar is good for us as it relates to trade and opportunities." He was speaking at the World Economic Forum in Davos, Switzerland. His comments mark a change of policy from previous treasury secretaries who have called for a strong dollar. Looking at the latest economic data, forward-looking indicators continue to suggest a sunny outlook for US GDP growth. Markit manufacturing and composite PMIs were slightly ahead of expectations. While existing home sales missed expectations, this was mostly related to limited supply. All in all, the US dollar remains firmly in a bear market. Thanks to strong growth outside the United States, the dollar is likely to keep falling. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is down today and currently trading above 108.70. EUR/USD is up and is trading above 1.2450. The pound is up, and GBP/USD is currently above 1.430.
Looking at economic data this week, markets will be watching PMIs and Q4 GDP figures. The Chicago Fed National Activity Index was lower than expectations (0.27 vs. 0.44 expected). The housing price index (6.5%) was just below expectations while Markit composite PMIs (53.8 vs. 53.5 expected) were ahead of consensus estimates. Existing home sales (5.57m vs. 5.70m expected) were slightly below expectations. Later today, 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.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is looking oversold. This is based on technical indicators when looking at a weekly chart.