The US dollar is currently mixed. Looking at the buck against its major global peers, the US dollar is weakest against the Canadian dollar today. Following Gary Cohn's resignation earlier this week, markets are waiting for President Trump to announce new tariffs later today. Last night, White House Press Secretary Sarah Sanders claimed that Canada and Mexico may receive a 30-day exemption from any new tariffs. Assuming NAFTA talks progress, the exemptions may be extended further. Trump is expected to impose duties of 25% on steel and 10% on aluminum imports. Many of America's largest trading partners, including the Eurozone and Japan, have threatened to retaliate. While the US dollar fell sharply following Cohn's resignation, the currency has since traded within a fairly narrow range. As we wrote yesterday, we expect the dollar to strengthen against the national currencies of countries targeted by Trump following the implementation of tariffs. In recent history, this is why the Canadian dollar has been weak relative to the US dollar. So far, the global impact from tariffs are unclear given the lack of details (beyond Trump's tweets). 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 105.90. EUR/USD is flat and trading above 1.240. The pound is flat, and GBP/USD is currently above 1.390.
Turning to US economic data this week, markets will be focused on PMIs and non-farm payrolls. Markit composite PMIs (55.8 vs. 55.5 expected) and ISM non-manufacturing PMIs (59.5 vs. 59 expected) both beat expectations. Fed Vice Chair Randal Quarles called for easing banking regulations (specifically: "material changes" to the Obama-era Volcker Rule). MoM factory orders (-1.4%) met expectations. Fed voting member Brainard said economic tailwinds could accelerate future rate hikes. ADP employment changes (235k vs. 195k expected) and nonfarm productivity (0% vs. -0.1% expected) beat consensus estimates. The trade balance (-56.6b vs. -55.1b expected) and consumer credit (+13.9b vs. +17.9b expected) were below estimates. Dallas Fed President Kaplan highlighted the need for 3 rate hikes given good growth, while Atlanta Fed President Bostic warned that trade wars may slow the pace of future hikes. Later today, we'll see initial jobless claims. On Friday, the most important day, we'll see nonfarm payrolls numbers, hourly earnings and the participation rate. Last week, Core PCE figures came within expectations.
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.