The US dollar is mostly higher this morning, and is strengthening the most against the Japanese yen and the Australian dollar. Rising US bond yields are having a limited impact on the currency, as 10-year US Treasury yields hover just below 2.80%. Yesterday the currency weakened following strong Eurozone manufacturing survey figures. The US dollar tends to weaken when ex-US growth is strong. Looking at US economic data, all indicators continue to point towards accelerating growth. Both ISM and Markit manufacturing PMIs beat expectations. While productivity was lower than expectations, initial jobless claims beat consensus estimates. Looking at technical conditions, the US dollar continues to look oversold on a daily and weekly chart. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is up today and currently trading above 109.680. EUR/USD is down slightly and trading above 1.2490. The pound is flat, and GBP/USD is currently above 1.4260.
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. Initial jobless claims (230k), Markit manufacturing PMIs (55.5) and ISM manufacturing PMIs (59.1) all beat expectations. Nonfarm productivity (-0.1% vs. 1% expected) was lower than consensus estimates. Later today, we’ll get the all-important nonfarm payrolls figures 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.