Does the Strong Employment Report Give the Greenback Legs?

The robust US employment report before the
weekend allowed the dollar to recoup the losses it experienced earlier in the
week against most of the major currencies.
 The Australian dollar and Japanese yen
managed to hold onto minor gains for the
The US Dollar
Index stalled in front of a band of resistance (96.45-96.55), which houses the
61.8% retracement of the decline from July 27 (97.55) and the 20-day moving
 The technical indicators look
constructive as the Dollar Index has strung together a three-day advance.
 An advance through the band could signal a move back toward the recent
highs. Initial support is now seen just below 96.00.  
The euro posted
an outside up day on July 27.
  It is
signaled about a two cent move. The euro staged an outside down
day on August 5, with the help of the stronger US employment data.   It is difficult to envision a two cent decline
from the $1.1045 area the euro found support ahead of the weekend.  
Indeed, the
losses after the employment data may have completed a correction that began a
few days earlier.
  On an intraday basis, the euro had
surpassed the 61.8% retracement (~$1.1060) of the rally advance began on July
25 near $1.0950, but it closed above it.  The first test of this near-term
constructive view is in the $1.1100-$1.1130 area.  

Over the past
four sessions, the dollar has carved out a shelf in the JPY100.65-JPY100.85. 
More work is need to boost investors confidence that yen’s
strength is exhausted.  Initial resistance is
seen in the JPY102.25 area, and JPY102.85 is the highest the dollar has
been since the BOJ disappointed. The 38.2% retracement of the decline from the
July 21 high near JPY107.50 is JPY103.30.  The RSI and fast stochastics
point to a higher dollar.  The MACDs
and the slow stochastics have not yet turned.  

The combination
of the multidimensional easing measures by the Bank of England, which got ahead
of market expectations, coupled with the second consecutive robust US jobs
report, knocked sterling back from two-and-a-half-week highs to the lower end
of its range.
  Sterling approached $1.3020.
 Although sterling was pounded through there in early-July, it has
held above there since.  While we expect an eventual break, the technical
indicators do not suggest it is imminent.  
The US dollar
has built a based near CAD1.30 for six sessions.
  It took
the extremely poor Canadian data (and
strong US data) to lift it from its base to CAD1.32.  The economy lost
jobs for the second consecutive month in July.  Canada also reported its
second consecutive record trade deficit June). This
follows, as you will recall, a 0.6% contraction in the Canadian economy
in the month of May.  It is the third decline in output in four months.
   We continue to look for test near CAD1.33. Over the slightly
longer term, the risk increases that Bank of Canada will be more dovish, and
the US dollar moves toward CAD1.36.  
The Australian
dollar was still one of the strongest currencies against the dollar last week
 Although the Reserve Bank of
Australia cut interest rates, the combination still relatively high yields and
triple-A credit draws international savings and speculative interest.
 Even in the face of the rising US dollar on the employment data, the
Australian dollar held up well.   The technical indicators we use are not generated strong signals.  The
Aussie is approaching a band of resistance found between around $0.7660 to
In addition, it
is flirting with trendline resistance. 
 It is
found by connecting the April 21 high (~$0.7830) and the July 15 high
(~$0.7675).  It caught a couple more recent highs and was found near
$0.7635 before the weekend.  The trend line
was violated intraday, but not on a
closing basis.  It is found just
above $0.7620 at the end of next week.  
Oil prices had
a midweek bounce that saw the September light sweet crude oil futures contract
rally six percent in two sessions.  
The proximate trigger was a sharp, that is 10-fold larger
than the market expected, drop in gasoline stocks, which seemed to offset the
unexpected build in oil inventories.  US oil inventories have risen by
three mln barrels of the past two week,
after a nine-week drawdown.  
The rising
dollar ahead of the weekend put a damper on oil.
  Technical indicators such the MACDs and slow stochastics suggest a more
sustained correction is likely nearby if
it has not yet begun.   Talk now that some of in OPEC are talking about an
agreement, perhaps on quotas as early as next month may feed such price action.
 We are skeptical. The usual proponents, like Venezuela and Ecuador,
are the antagonists.  The Iranians are only about half way toward
returning to output levels seen before
the embargo.  Agreeing to an output cap before returning output to status quo ante raises the cost of surrendering (or postponing) their nuclear ambitions.  
The September light sweet contract met and overshot the 61.8% of this year’s $20 rally (from a little
below $33 to a almost $53), but finished the week above it (~$40.45). 
 Initial resistance is
seen $42.40-$42.80, with a break allowing for $44.00-40
US 10-year
yields have not been much above 1.60% since the UK referendum. 
The rise in yields after the jobs data put them back to the
upper end of the range.   The September bond futures found support near
132-00 before the weekend.  However, a move below last month’s low (131-19) which corresponds to the 50%
retracement of the rally (decline in yields) since the end of May, is needed to
boost confidence that a top of some import is in place.  Recall that
130-21 was the low from the UK
The S&P 500
eased on profit-taking at the start of the week.
  The pullback saw the S&P 500
slip below its 20-day moving average for the first time in a month.
 Buying, perhaps encouraged by first, lower interest rates, as the
Australia cut rates and the UK rejoined the QE club, and then by the economic
strength implied by the jobs data, lifted the index to new record highs before
the weekend.   The pre-weekend gain of about 0.75% was the largest since
the June employment data was reported in
early July.    The S&P 500 recorded a bullish outside up



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