The US dollar is currently trading at three year lows thanks to rising global risk appetite, strong growth outside the United States and a sharp run-up in the Japanese yen. As global equity markets rebound, safe haven flows into the US dollar are reversing. Looking at growth, current and forward-looking indicators suggest that growth in the Eurozone is on track to keep accelerating. While recent Japanese GDP growth was fairly disappointing, the yen strengthened following the announcement due to its safe haven characteristics. As USD/JPY is traded in significant volumes, a strengthening yen tends to weaken the US dollar in relative terms. Turning to US data, the US dollar has been fairly immune to positive economic data and rising US Treasury bond yields. Thanks to solid jobs and inflation figures, US Treasury yields are rising as the market bets on a faster pace of rate hikes. While the buck typically benefits from higher relative interest rates, this isn't the case today as markets expect monetary policy to tighten around the world. Later today, we will downgrade our short-term outlook to bearish, while our medium-term outlook remains bearish.
USD/JPY is down sharply today and currently trading above 105.70. EUR/USD is up and trading above 1.2540. The pound is up, and GBP/USD is currently above 1.4140.
Looking at US economic data this week, markets will be focused on retail sales and consumer price index figures. The monthly budget was worse than expectations. The YoY Consumer Price Index beat estimates (2.1% vs. 1.9% expected). MoM retail sales (ex-autos) were lower than estimates (0% vs. 0.4% expected). Initial jobless claims (230k) and the NAHB housing market index (72) met expectations. The Philly Fed manufacturing survey (25.8 vs. 21.1 expected) was ahead of expectations. MoM industrial production (-0.1% vs. 0.2% expected) and capacity utilization (77.5% vs. 78% expected) were slightly below consensus estimates. Later today, we’ll get housing starts and building permits. Last week, strong PMI numbers suggested a positive outlook for US growth.
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.