The US dollar is rising against all major currencies today. The buck is currently the strongest against the Australian dollar and the Japanese yen. Yesterday, the dollar gave up some of its recent gains despite soaring US Treasury bond yields. Following recent strength in the currency, we have upgraded our short-term outlook on the dollar to bullish.
Turning to recent news and events, 10-year US Treasury bonds are currently yielding 3.003%. The last time 10-year Treasuries traded above 3% was in April 2011. Relative to other major currencies, US government bonds offer significantly higher relative interest rates. For example, the spread between US 10-year and German 10-year bonds is currently near all-time highs. Last year, soaring US bond yields had a limited impact on the currency as investors chased riskier investments such as technology and emerging markets stocks.
As growth outside the US decelerates (while US growth remains strong), bond yields are starting to have an influence on riskier investments. Yesterday, both house prices and new home sales were ahead of expectations. Despite the good economic data, the S&P 500 and the NASDAQ sold off sharply in response to rising yields. Our short-term outlook on the US dollar is bullish, while our medium-term outlook remains neutral.
USD/JPY is up today and currently trading above 109.0. EUR/USD is down slightly and trading above 1.2210. The pound is down slightly, and GBP/USD is currently above 1.3960.
Looking at economic data and events from the US this week, traders will be paying close attention to upcoming Q1 2018 GDP growth figures. The Chicago Fed national activity index for March (0.1 vs. 0.27 expected) was below expectations. Existing home sales for March (5.6m vs. 5.5m expected), Markit services PMIs (54.4 vs. 54 expected), and manufacturing PMIs (56.5 vs. 55 expected) were ahead of expectations. S&P/Case-Shiller home prices for February (6.8% vs. 6.3% expected) and March MoM new home sales (4% vs 1.9% expected) were both ahead of expectations. Later today, we’ll see weekly initial jobless claims figures as well as durable goods for March. On Friday, the most important day, we’ll see Q1 GDP growth and Q1 personal consumption expenditures. We’ll also see the Michigan consumer sentiment index for April. Last week, the Fed’s Beige Book suggested that growth continues to accelerate at a moderate pace.
As the dollar gains strength, we are now bullish on the dollar 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.
As the dollar trades sideways, we are now neutral on the US dollar. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.