The US dollar showed an unexpected resilient
to the disappointing August employment data. The dollar’s resilience
in the face of the jobs data may reflect that many see the report did not alter investors’ or policymakers’ information set. It did not sway opinion very much for or against a move. There is not much market-moving data from
the US next week outside of the ISM non-manufacturing report.
Investors should not expect much guidance by
Fed officials either as the Troika of Yellen, Dudley and Fischer do not have
public appearances next week. On the other hand, the ECB, Reserve Bank of
Australia and the central banks of Canada and Sweden meet. Only the ECB’s
meet is seen as live with the other central banks on hold. The ECB may
extend its asset purchases beyond March 2017 and may have to tweak its
self-imposed restrictions on what it is buying to minimize the disruption.
The US Dollar Index slipped to new lows for
the week. That low just below 95.20, which is also the 100-day moving
average, completed a 50% retracement of the rally at the spurred by
Yellen and Fischer’s comments from Jackson Hole on August 26. The 61.8%
retracement is found near 95.00.
Initial resistance is seen near 95.85,
but it will take a break of this week’s high of almost 96.25, which also
corresponds to the 200-day moving average, to signal a resumption of the
dollar’s advance.
The euro recovered from the midweek low of
nearly $1.1120 to $1.1250 after the US employment data. The $1.1260
area corresponds to a 61.8% retracement of the Yellen-Fischer spurred
decline. At $1.1245 the euro retraced 50% of the decline since the August
high near $1.1365. With reasonable prospects of ECB action, and still lingering
ideas that the employment data is sufficient for the FOMC, participants may be
hesitant about pushing the euro much above that $1.1250 area. The
$1.1100-$1.1150 band may cushion
losses. The 200-day moving average is
found in the middle of that band. A break of $1.11 could set up a
test on the August low by $1.1045.
The dollar has been particularly
resilient against the yen. It posted an outside up day. The dollar
was testing JPY100 before Yellen/Fischer, and after a little hiccup on the jobs
data (saw JPY102.80), it recovered to make new session highs a little below
JPY104. A trendline drawn off the
late-May high (~JPY111.45) and the mid-July high (~JPY107.50) is found near
JPY104.30 at the start of the new week and JPY103.80 by the end of the week.
The 61.8% retracement of the drop since that mid-July high is JPY104.45.
A break of that area may spur a move toward JPY105.50.
Sterling is marching to a different beat than the euro and yen. The
string of better than expected data is encouraging a bout of short-covering,
and forcing participants to re-think the extent that the BOE will ease.
We have been monitoring the downtrend line drawn off the post-referendum highs
in June, July, and August. It was breached the day before the US jobs
report and held on the pullback afterward
(~$1.3250). Above $1.3375, the high from early August, a
significant test is in the $1.3500-$1.3565 band, the high since the
referendum.
The euro is trending lower against
sterling last week. It has convincingly broken below GBP0.8400. We
have suggested the August low of GBP0.8345 as a reasonable near-term
target. The GBP0.8280 area is the 38.2% retracement of the
post-referendum move. A break of that could spur a move to the 50%
retracment and post-referendum low near GBP0.8145.
Weak economic data, the drop in oil prices,
and the prospect of a Fed hike has kept the Canadian dollar on the defensive
since the middle of August. The US dollar approached the CAD1.3150
area before pulling back before the weekend. The US dollar initially sold
below CAD1.30; it quick met new
buyers. .To signify anything important,
the US dollar would need to be sold below
CAD1.2980. In lieu of that, the
greenback can return to the CAD1.3100-CAD1.3140 area.
The Australian dollar looked like it had legs.
After the US jobs data, it spiked to
$0.7615 from around $0.7545. It stopped short of the 20-day moving
average (~$0.7620), which also corresponds to the 50% retacement of the Aussie’s erosion since $0.7750 was approached in
mid-August. Support is seen in the
$0.7490-$0.7500 area. A break would open the door toward
$0.7400.
The October light sweet crude oil futures
contract had a horrible week. It lost 7.25% on top of the 3% drop the
previous week. The market has become more skeptical of an agreement later
this month to cut or even freeze output. The five-day moving average
crossed below the 20-day. However, despite the dollar’s recovery after
the employment data, oil prices remained firm. A move above $44.45 may
see a correction toward $45.75-$46.00.
The US 10-year Treasury yield made both the
high and low prints for the week after
the jobs data (1.54% and 1.62%). The December note future made the
high for the week before the weekend, but it held just above the week’s low of
130-14. Below there the 130-00 may attract interest (131-00 basis the
September contract). Yields in
Europe and Japan may be dragged higher by the backing up of US yields.
The Sept Bund futures contract finished the week below an
uptrend line that began in late-April. The Sept JGB futures contract
broke down to post its lowest close since March, amid speculation that the BOJ
may slow its purchases of long-term bonds ostensibly to force a re-steepening of the yield curve.
In the last two weeks, the S&P 500 has
only closed higher three times and once was before this past weekend.
Moreover, the S&P 50 gapped higher after the employment data. That
gap is found between Thursday’s high
(~2173.55) and Friday’s low (~2177.50). We suspect the gap will be closed over the next several sessions, but expect the broad trading range to persist
that will keep prices mostly in a 2150-2200 band . The pre-weekend US equity advance
and the dollar’s resilience against the yen suggest further upside for the Nikkei
next week. A move above 17000 for the first time since early-June could
signal another 500 point rally to test the April highs. The DAX also
looks poised to move higher. The first target is the August and year high a little above 10800.