The US dollar (DXY) is currently trading with an upside bias, holding near the 101.16 level, up 0.17%. The rebound comes following a weak session on Tuesday, despite several data releases that were supportive to the greenback.
The second estimate of third quarter US GDP showed growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate. In addition, US consumer confidence surged to a 9-year peak in November. The Conference Board reading of consumer confidence increased sharply to 107.1 for November from an upwardly revised 100.8 for October, which was originally reported as 98.6. This was the highest reading since the middle of 2007.
Also during yesterday’s session, Fed Governor Powell backed a December rate hike. He stated that incoming data showed the economy growing at a healthy pace with solid payroll growth and inflation gradually moving up to 2%. In Powell’s view, the case for an interest rate increase has clearly improved since the previous meeting in November. At present, fed fund futures are pricing in a 91.7% probability of an interest rate increase at the FOMC meeting in December.
Despite the bullish developments, the dollar remained under pressure, ending the session with a modest loss. However, it appears DXY is merely reacting to the severe overbought condition which has developed as a result of the steep rally from the November low. In addition, the recent high at 102.05 represents a test of the next level of resistance at the 102-102.15 zone, another factor that could be working to keep the dollar under pressure in recent days.
On the downside, first support is at the November 22nd low at 100.65, which was reinforced by Monday’s 100.64 for a low and subsequent bounce. Continuing to hold this level would keep the near term bias in the dollar firmly to the upside.
Should dollar maintain the current upward momentum and break out to new highs, the next target becomes 103.50. Longer term, the target for the dollar is at the 108-109 area. This target is derived from the recent breakout from a multi-month consolidation phase, as can be seen on the monthly chart.
Today in the US, several economic data releases are on the calendar. At 8:15am EST, the ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month. At 8:30am, EST Personal Income/Spending for October and the PCE Price Index are due to be released. These figures will factor into Q4 GDP estimates, as well as the interest rate decision in December. Consensus forecast is for Personal Income at 0.4% and Personal Spending at 0.5%. The Core PCE Price Index is forecast unchanged from the prior reading at 0.1%. Chicago PMI for November is then due at 9:45am EST. It is forecast at 52.0 following a reading in October at 50.6. Pending Home Sales for October is due at 10:00am EST (expected to rise by 1% month-over-month from 1.5% in September), followed by the Fed’s Beige Book at 2:00pm EST.
The key report for the week, however, is nonfarm payrolls for November on Friday. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs. A much weaker-than-expected number could call into question the potential for a December rate hike, a development that would likely hit the dollar hard, at least on a short term basis.
The latest Commitment of Traders report from the CFTC was released on Monday with data as of the November 22nd close. The report indicated large speculators increased long positioning in dollar futures by 11,476 contracts and increased short positioning by 6,715 contracts. The current net long positioning of US dollar futures contracts stands at 53,189. This is not far off from the recent peak in net long positioning of 54,330 contracts as of the November 1st close. Market participants are net short all of the major currencies against the dollar, except for the Japanese yen, New Zealand dollar and Australian dollar.