The US dollar is mostly flat today. Looking at the major pairs, only GBP/USD and USD/JPY are making significant moves. The dollar is selling off against the British pound while making gains versus the Japanese yen. The currency has been trading in a narrow channel since early February. While the dollar was poised to re-enter a short-term bearish trend last week, yesterday's move up means that the short-term outlook remains neutral.
Turning to recent news, fears of a trade war are rising after the US weighed emergency laws in order to block Chinese investments. According to Bloomberg, The International Emergency Economic Powers Act, enacted in 1977, allows the president to block specific transactions and seize assets in the face of a significant threat. In other trade news, Trump has also discussed pursuing joint action against China with the help of Germany's Angela Merkel and France's Emmanuel Macron. While risk sentiment was improving on Monday (following comments by US Treasury Secretary Mnuchin), fears of an all-out trade war are once again on the rise. 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 105.60. EUR/USD is down and trading above 1.2390. The pound is up, and GBP/USD is currently above 1.41850.
Looking at US economic data this week, we'll see personal consumption expenditures and the second-take of Q4 GDP growth. The Chicago Fed national activity index (0.88 vs. 0.19 expected) beat expectations. FOMC member Mester stated that the threat of a trade war is a risk despite the sunny economic outlook. S&P/Case-Shiller home prices (6.4% vs. 6.2% expected) beat expectations. The Fed's Bostic did not address monetary policy. Later today, we'll see the second-take of Q4 GDP growth and Q4 personal consumption expenditures. We'll also see February pending home sales and hear a speech from Bostic. Thursday is the most important day, and we'll see core personal consumption expenditures for February as well as initial job claims and Chicago PMIs. We'll also get a speech from the FOMC's Harker. Last week, Fed Chair Jerome Powell raised rates by 0.25% while suggesting that future policy will be determined based on incoming data.
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.