The US dollar is currently mixed. The dollar is trading higher against the Australian dollar, the Canadian dollar and the Japanese yen, while trading sideways against the British pound and the euro. Last week, the US dollar surged at the outset of the week as the euro and the British pound sold off sharply. While US Treasury bond yields did not move higher last week, the dollar continues to make gains as global growth outside the United States decelerates. Recent nonfarm payroll figures, which were below expectations, did little to stop the dollar's ascent. As the buck continues to look overbought, we expect the currency to give up some of its recent gains.
Looking at recent news, the Trump/Kim summit is most likely to take place in June according to South Korean media reports. While a date and a location have been set, further details are currently unavailable. Turning to US-China trade tensions, the US has criticized Chinese moves to stop US corporations from addressing Taiwan, Macau and Hong Kong as countries on their websites. Unlike previous administrations, Trump is taking a much more forceful approach to Chinese trade, and recently tweeted that China has become "very spoiled with U.S. trade wins".
Lastly, the past week has seen a number of emerging market currencies (such as the Argentinian peso and the Turkish lira) sell off sharply against the US dollar. This phenomenon is a warning sign for other emerging markets, as many developing countries have been big USD borrowers during the ongoing upturn. Now that global growth is slowing, and US interest rates and the US dollar are simultaneously rising, many borrowers are struggling to repay their USD loans. As interest rates look set to keep rising (thanks to rising inflation), there are many good reasons for the dollar to keep strengthening in the longer term. Our short-term and medium-term outlook on the dollar is bullish.
USD/JPY is up slightly today and currently trading above 109.10. EUR/USD is flat and trading above 1.1940. GBP/USD is flat, and currently above 1.3530.
This week’s US dollar economic calendar includes inflation figures and consumer sentiment. Later today, we’ll see March consumer credit figures. We’ll also hear speeches by FOMC members including Bostic and Kaplan. On Wednesday, we’ll see the April producer price index and hear another speech from Bostic. On Thursday, we’ll see weekly initial jobless claims, and the consumer price index for April. Given the recent acceleration in inflation, the data will be watched closely by foreign exchange traders. On Friday, we’ll see consumer sentiment for May. Last week, the Federal Reserve kept interest rates on hold and signaled comfort with inflation slightly above its two percent target.
As the dollar gains strength, we are now bullish on the dollar in the short-term. Note that the currency is currently looking overbought 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 rises, we are now bullish 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.