Does the market still underestimate the strength of the US economy and the dollar? (Updated 2021.08.13)
In Japan's only FX specialty magazine "FX Tactics.com," a popular series with over 130 installments titled "The Future of the Foreign Exchange Market" continues, and we will ask economist Tomotaro Tajima, who remains active on the Web, to share how he predicts the market will move moving forward.
Tomotaro Tajima Profile
Tomotaro Tajima. Economic analyst. President and CEO of Alfinauntsu. Born in Tokyo in 1964. After graduating from Keio University, he transitioned from working at Mitsubishi UFJ Securities to pursue research and analysis across a broad range—from finance and the economy in general to strategic corporate management, and even individual asset formation and fund management. He serves as a lecturer at lectures, seminars, and training sessions hosted by private companies, financial institutions, newspapers, local governments, and various business associations, with about 150 lectures annually. He has written many column pieces and comments for print media including Weekly Gendai's "Rules of Net Trading" and Examina's "Money Maestro Training Course." He has authored numerous columns on stock and FX across many websites and is highly regarded as a stock and FX strategist. He also writes for the FreePress "Gendai Yōgo no Kiso Chishiki" home economics section. After regular appearances on television (TV Asahi's "Yaji-uma Plus," BS Asahi's "Sunday Online") and radio (MBS's "Tsuruga's Asa-chi Radio"), he currently serves as a regular commentator on Nikkei CNBC's "Market Wrap" and Daiwa Securities Information TV's "Eco Marche." His main DVDs include "Very Easy to Understand. Tomotaro Tajima's FX Introduction" and "Very Easy to Understand. Tomotaro Tajima's FX Practical Technical Analysis." His major books include "Wealth Review Manual" (Pal Publishing), "FX Chart 'Formula for Profit'" (Alchemix), "Why Can FX Make You Asset Rich?" (Texts), among many others. The latest publication is "How to Profit by Riding the Rising US Economy" (Free Press).
Table of Contents
- Do not underestimate the strength of the US economy and the dollar
- US Consumer Price Index (CPI) results
- Euro/dollar and dollar/yen outlook
Article body: 1,383 characters (paid portion: 527 characters)
Do not underestimate the strength of the US economy and the dollar
In the previous update on July 26, I wrote about the 10-year US Treasury yield: “The current level (below 1.2%) is clearly too low, and it is simply technical factors—recovery by those who hedged US Treasuries by selling futures, etc.—that is driving it.” In fact, the yield rose to as high as 1.37% this week on the 11th. Consequently, USD/JPY briefly rose to 110.80, while EUR/USD fell to as low as 1.1706. Both outcomes matched our expectations, but US Treasuries yields remain too low, and the dollar is still undervalued in my view.
Again, we must not underestimate the strength of the US economy and the dollar. As is well known, last week on the 4th, the July ISM Non-Manufacturing PMI rose to 64.1, the highest level since the index began in 1997. This highlights the rapid rebound in demand for services such as dining and travel over the past few months. Moreover, in the July employment report released on the 6th, nonfarm payrolls (NFP) rose by 943,000, a substantial month-over-month increase. Leisure and hospitality showed particularly strong growth, indicating robust US consumer spending.
Furthermore, on the following Monday, June job openings reached 10.07 million, another record high. As has been noted for some time, in the US there have been advance terminations of unemployment benefit supplements in several weeks for June and July, with more people gradually returning to the job market. Of course, this was anticipated.
And this trend is expected to intensify in August and September. In September, the unemployment benefit supplements will be fully terminated, and with the new school term starting, more people will be available for child-rearing duties. There will be a record-high number of job openings awaiting.
US Consumer Price Index (CPI) results
On the other hand, regarding the July US CPI data released on the 11th this week, the market reacted with margins buying US Treasuries and selling the dollar. While some post hoc explanations claimed that the CPI results showed inflation cooling, the reality was—
