The US dollar is enjoying a small rebound this morning. Last week, the dollar sold off sharply following comments from Treasury Secretary Mnuchin at the World Economic Forum in Davos, Switzerland. While his remarks on the benefits of a weaker dollar drove the latest sell-off, the dollar remains in a longer-term bear market. While many commentators have blamed his statement for exacerbating the downturn, the real driver of dollar weakness is strong global growth and cross-border lending in USD. Looking at the dollar today, the currency is stronger against all major peers, and especially against the Japanese yen. USD/JPY is strengthening today thanks to both a US dollar rebound and strengthening US bond yields. Last Friday, we warned that the US dollar was looking technically oversold and due for a short-term rebound. As such, today's dollar strength was to be expected. The US dollar continues to look oversold on a daily and a weekly timeframe. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is up today and currently trading above 108.90. EUR/USD is down and is trading above 1.2390. The pound is down, and GBP/USD is currently above 1.4120.
Looking at economic data this week, there are quite a few items on the calendar. Most importantly, there is an FOMC meeting this week. Later today, we’ll see core personal consumption expenditures (the Fed’s preferred measure for underlying inflation). We’ll also see personal incomes, personal spending and the Dallas Fed’s manufacturing business index. On Tuesday, we’ll get Case-Shiller Home Prices. On Wednesday, we’ll see ADP jobs numbers, Chicago PMIs and pending home sales. More importantly, we’ll get a monetary policy statement from the Fed and an interest rate decision. The Fed is not expected to hike interest rates this week. On Thursday, we’ll see initial jobless claims, nonfarm productivity and Markit and ISM manufacturing PMIs. We’ll also see ISM prices paid. Finally on Friday, we’ll get nonfarm payrolls and the unemployment rate. We’ll also see average weekly hours and earnings, as well as factory orders. Last week, Q4 GDP came in below consensus estimates.
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.