The US dollar is mostly flat today after an eventful day yesterday. The dollar rose sharply yesterday thanks to several factors. Looking at the S&P 500, the index ended the day lower by -0.50%. Thanks to the ongoing stock market rout, the dollar is attracting safe haven flows. The currency was also helped by tumbling crude oil prices. Data from US Energy Information Agency showed that US crude oil production has surpassed Saudi Arabia (the world's #2 producer). As crude oil trades inversely to the dollar, the dollar rose as crude oil prices fell. Turning to monetary policy, comments from European Central Bank Governing Council member Ewald Nowotny led to a sharp sell-off in the euro. Specifically, he commented that "the U.S. Treasury purposely pushes down the dollar and wants to keep it low" (translated from German) in an interview with Wiener Zeitung. The euro tumbled after the news became public, strengthening the dollar. Finally, the dollar was helped by political news regarding a government funding deal. Democrats and Republicans have reached a deal that would keep the government funded for two years while increasing military and domestic spending. The Senate and the House are expected to vote on the deal later today. The bill may face difficulties in the House, where some Republicans are opposed to more spending while Democrats want a deal on immigration. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is up today and currently trading above 109.60. EUR/USD is flat and trading above 1.2270. The pound is flat, and GBP/USD is currently above 1.390.
Looking at US economic data this week, markets will be focused on more PMI surveys. Markit services (53.3) and composite PMIs (53.8) were fairly close to consensus expectations. ISM non-manufacturing PMIs were ahead of expectations (59.9). The goods trade balance ($-53.1b) and JOLTS job openings (5.8m) were below consensus estimates. MBA mortgage applications rose faster than the previous figures (0.7% vs. -2.6 prior) while consumer credit was below expectations ($18.5b vs. $20b expected). Later today, we’ll see initial jobless claims. Last week, core personal consumption expenditures met expectations while non-farm payrolls beat expectations.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.