The US dollar is rising against all major currencies except the Japanese yen today. The dollar is currently the strongest against the Canadian dollar and the Australian dollar. Yesterday, the currency strengthened alongside improving risk sentiment. Pairs such as USD/JPY (a barometer of risk appetite), were the strongest. Today, the dollar is making its most significant gains against commodity currencies.
Turning to recent news, President Trump has threatened tariffs on another $100b worth of Chinese trade. As Trump raises the stakes in his mission to lower US trade deficits, global equity markets are down sharply as traders fear an all-out trade war. Looking at foreign exchange markets, USD/JPY and AUD/USD are both selling off in response to falling risk sentiment. In recent history, sell-offs in foreign exchange markets have been relatively subdued compared to equity markets. While equity traders have been quick to sell stocks, movements in currencies have been less pronounced.
In other news, both initial jobless claims and the US trade deficit was worse than expected. Upcoming non-farm payrolls figures later today should provide further cues regarding the Federal Reserve's plans to raise rates. 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 107.30. EUR/USD is down slightly and trading above 1.2220. The pound is down slightly, and GBP/USD is currently above 1.3980.
Looking at US economic data this week, traders will be watching non-farm payrolls and sentiment data. Markit manufacturing PMIs (55.6 vs. 55.7 expected) and ISM manufacturing PMIs for March (59.3 vs. 60 expected) both missed expectations. FOMC member Kashkari said that not many hikes were needed, while the Fed was not focused on volatility in the stock market. Markit services (54 vs. 54.3 expected) PMIs, factory orders for February (-1.2% vs. 1.7% expected), and ISM non-manufacturing figures (58.8 vs. 59 expected) for March missed expectations. Markit composite PMIs (54.2 vs. 54.1 expected), as well as ADP employment changes for March (241k vs 205k expected) were ahead of expectations. FOMC member Mester did not address monetary policy or foreign exchange rates. The trade balance for February (-$57.6b vs. -$56.8b expected) and initial jobless claims (242k vs. 225k expected) were both worse than expected. Today is the most important day, and we’ll get non-farm payrolls and hourly earnings for March. We'll also hear comments from Fed Chair Jerome Powell. Lastly, we’ll see changes in consumer credit. Last week, Q4 GDP growth (2.9%) beat 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.