The US dollar is currently slightly lower. The buck is currently the weakest against the Australian dollar, the Japanese yen and the euro. While last week's jobs report was significantly ahead of expectations (313k vs. 200k expected), wage growth failed to meet expectations. The results helped improve risk sentiment, as the US economy continues to grow without the threat of accelerating inflation. High wage growth typically drives up expectations for more rate hikes from the Federal Reserve. Looking at reactions across markets, riskier assets such as US equities surged following the data. As risk sentiment improves, the dollar is unlikely to strengthen based on US economic data. As the world's reserve currency, the US dollar tends to weaken when global economic conditions are benign. Instead, future dollar strength is more likely to be the result of slowing international growth in the Eurozone and in Asia.
Turning to political news, President Trump reiterated his threat of tariffs against the European Union this weekend. Trump has repeatedly criticized the EU for high tariffs on imported products. On the other hand, Australia is likely to gain an exemption from tariffs following a call between Australian Prime Minister Turnbull and President Trump. 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 106.60. EUR/USD is up slightly and trading above 1.2310. The pound is flat, and GBP/USD is currently above 1.3850.
Turning to US economic data this week, markets will be focused on inflation and retail sales figures. On Tuesday, we'll see headline inflation for February. On Wednesday, we'll get March retail sales and the producer price index for February. On Thursday, we'll get initial jobless claims, the Philly Fed manufacturing survey and the NAHB housing market index. Finally on Friday, we'll see a number of figures relating to housing (housing starts, build permits), industrial production and capacity utilization. Last week, non-farm payrolls came in above expectations while wage growth failed to meet 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.