The Dollar Forecast: The Dollar Might Be Bottoming
The Dollar Slips, The Outlook Is Questionable
Last week the dollar slipped to a new low after the Fed minutes revealed the committee was still concerned about the economic rebound. the news sent the Dollar Index to a new low that confirmed a downtrend that has been in place for several months. Only it didn’t. The move lower was met by buyers that may have put a bottom into the index but I’m not so sure.
The bottom, possible bottom, is due to the data. While the FOMC remains cautious about the economy the economic data is robust. The jobless claims is a weak spot they remain focused on but, based on other data, is merely a sign of turnover in our disrupted and recovering economy. Other data, such as the Leading Indicators and Philly Fed MBOS, may have retreated in the last month but the reality is they are well above the levels seen before the pandemic. The rebound may have slowed from its opening surge but it’s still quite strong.
Still other data, data like the Flash Readings on August PMI, suggest that activity is picking back up. You see, the thing about economic recovery is that activity begets activity. When one business opens it hires and pays consumers to work for it, it has to make orders to other businesses for goods and services, and all of the leads back to demand for the original business. Like I’ve said before, the U.S. economy didn’t disappear, it went home for a few weeks and came back ready to work.
The risk for traders this week lie in the data, and Mr. Jerome Powell. There are a few important data points on the calendar starting with consumer confidence on Tuesday and ending with the Personal Income and Spending data on Friday. In between, home sales, jobless claims, and a revision to 2nd quarter GDP will keep the markets attention. Perhaps the most important event, though, will be Jerome Powell’s comments on Thursday. If he gives sign of confidence in the economy and a lack of need for monetary stimulus the Dollar Index will rally and rally hard.
If the data comes in strong it could juice the rally. the risk comes form Washington, and Powell. He may not fell the economy is on the same footing that I do, and Washington politicians may finally get their act together. If another stimulus bill is passed it could weigh heavily on the dollar.. but only in the near term because longer term it will only mean more-aggressive economic recovery.
