The US dollar is flat today after ending the day flat yesterday. The stock market rout continues thanks to recent sell-offs in US and Asian stock markets. Yesterday, the S&P 500 fell 3.75%. This morning, Hong Kong's Hang Seng Index is currently down 3.62% while Japan's Nikkei 225 ended the day down by 2.32%. While stock markets remain highly volatile, foreign exchange markets have been relatively calmer. Looking at the US dollar, the currency only gained against commodity currencies such as the Australian dollar yesterday. The dollar has been trading sideways against the euro and the British pound. Turning to data, initial jobless claims were slightly below consensus estimates. Looking at political news, the US government is set to shut down after Senator Rand Paul objected to increased spending. Paul's use of a Senate procedure means that the spending agreement was not passed before the shutdown deadline. The House and Senate are expected to vote on the bill this morning. 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 flat and trading above 1.2250. The pound is flat, and GBP/USD is currently above 1.3940.
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). Initial jobless claims (221k) were better than expectations. 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.