The US dollar is mostly flat today, after ending the day flat yesterday. Looking at the buck against its major global peers, there are no significant moves worth highlighting. The dollar is likely to remain subdued ahead of Jerome Powell's first testimony to the US Congress later today. Powell will testify on the Federal Reserve's semi-annual report on monetary policy and the economy before the US House of Representatives’ Financial Services Committee. Later this week, we'll see Core PCE figures (consensus: 1.5%) that remain below the Fed's inflation target of 2%. While US GDP growth continues to perform well, inflation has been an ongoing issue despite low interest rates and many rounds of quantitative easing. As such, Powell is likely to provide an optimistic outlook on growth while remaining more cautious on inflation. Unless Core PCE (the Fed's preferred measure of inflation) rises above 2% in the future, the Fed is unlikely to upgrade its outlook on inflation. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down slightly today and currently trading above 106.80. EUR/USD is up slightly and trading above 1.230. The pound is flat, and GBP/USD is currently above 1.3960.
Turning to US economic data this week, we’ll see GDP figures and Core Personal Consumption Expenditures. New home sales (0.59m vs. 0.65m) and the Chicago Fed national activity index (0.12 vs. 0.15 expected) were below consensus estimates. The Dallas Fed manufacturing index (37.2 vs. 28.4 expected) blew past estimates. St. Louis Fed President Bullard warned against "substantially" higher interest rates. Later today, Fed Chairman Jerome Powell will deliver his first testimony to Congress. We’ll also see durable goods and Case-Shiller home prices. On Wednesday, we’ll see the second take of Q4 GDP growth and Q4 Core Personal Consumption Expenditures. Powell will once again be speaking on Wednesday. We’ll also see Chicago PMIs and pending home sales. On Thursday, we’ll see January Core PCE figures, personal spending, initial jobless claims, construction spending, and Markit + ISM manufacturing PMIs. Last week, FOMC minutes suggested an improving outlook for growth and inflation.
As the dollar gains strength, we are upgrading the dollar to neutral in the short-term. Note that the currency is now trading within normal conditions in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
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.