The US dollar is currently mixed. With the exception of significant strength against the Japanese yen, movements in the currency are fairly limited. The Japanese yen is selling off after Trump hailed "great progress" with North Korea's Kim Jong Un and stated that a "meeting [is] being planned". As risk sentiment in Asia improves, the Japanese yen is weakening (as a safe haven, the yen weakens on positive developments). Yesterday, the US dollar moved up sharply after European Central Bank President Mario Draghi disappointed markets. The ECB lowered its forecast for future inflation, while Draghi advised markets not to read too deeply into changes in wording regarding the Bank's asset buying program. Despite high expectations, Draghi failed to more clearly signal an end to the ECB's asset buying program later this year. As the euro sold off sharply, the US dollar strengthened in relative terms. Turning to other news, Trump announced steel and aluminum duties as expected yesterday. Notably, he exempted Canada and Mexico from the tariffs. Both the Canadian dollar and the Mexican peso soared on the announcement. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is up today and currently trading above 106.60. EUR/USD is flat and trading above 1.2310. The pound is flat, and GBP/USD is currently above 1.380.
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. Initial jobless claims (231k vs. 220k expected) were worse than expectations. Later today, 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.