The US dollar is mostly mixed. The buck is currently strengthening against the Australian dollar and the Canadian dollar, while selling off against the Japanese yen, the British pound and the euro. Yesterday, the dollar weakened as risk sentiment improved. Turning to other markets, riskier assets such as US equities and copper have rebounded in the past few trading sessions.
Yesterday, the dollar was mostly unchanged following good retail sales and comments by the Fed's Bostic and Kashkari. Bostic said that the Fed has not seen much movement in wages, and remains committed to full employment. Kashkari echoed Bostic's comments, and said there is slack in the economy. There were also limited reactions in foreign exchange markets following Trump's tweets regarding Russia and China playing the "currency devaluation game".
In a longer commentary on the dollar, we argued that the currency remains sensitive to ex-US growth. As the world's reserve currency, the dollar tends to react more to global events instead of only domestic conditions in the US. As Trump is scheduled to meet Abe later today at his Mar-a-Lago resort, traders will be watching for signs of trade tensions between the US and Japan. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down today and currently trading above 107.0. EUR/USD is flat and trading above 1.2380. The pound is flat, and GBP/USD is currently above 1.4330.
Looking at US economic events this week, the most important data release is YoY March retail sales. MoM March retail sales (0.4%) met expectations. FOMC members Bostic and Kashkari noted that wages remain weak. Later today, we’ll see March build permits, housing starts and hear a speech from FOMC member Williams. We’ll also see industrial production and capacity utilization for March. On Wednesday, we’ll see the Fed’s Beige Book and hear speeches from Fed members including Dudley and Quarles. On Thursday, we’ll see initial jobless claims and hear another speech from Quarles. On Friday, we’ll hear a speech from FOMC member Mester. Last week, the consumer price index for March met 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.