Following yesterday's statement from the Federal Reserve, the dollar is trading sideways. While the currency strengthened immediately after the statement was publicly released, it has since given up some of its gains. As widely expected, the Fed forecast stronger growth and inflation in the near future, indirectly suggesting that monetary policy is set to become tighter. Looking at economic data, figures released last night all suggest that the US economy continues to accelerate. ADP employment numbers, Chicago PMIs and month-over-month pending home sales all beat consensus estimates. Despite the recent bounce, the dollar bear market remains intact. As optimism for global growth outside the US remains strong, the US dollar is likely to keep weakening in the longer term. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is up today and currently trading above 109.40. EUR/USD is flat and trading above 1.240. The pound is flat, and GBP/USD is currently above 1.410.
Looking at economic data this week, there are quite a few items on the calendar. Core personal consumption expenditures (1.5% YoY) met expectations. Personal incomes (0.4% MoM) beat expectations while personal spending (0.4% MoM) met expectations. The Dallas Fed’s manufacturing business index (33.4 vs. 14.6 expected) was significantly ahead of expectations. Case-Shiller Home Prices (6.4% YoY) met expectations while consumer confidence (125.4 vs. 123.1 expected) was ahead of estimates. ADP jobs numbers (234k vs. 185k expected), Chicago PMIs (65.7) and MoM pending home sales (0.5%) all beat expectations. The Fed signaled confidence regarding the outlook for growth and inflation in its most recent statement. Later today, 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.