The Dollar Set to Close the Month Lower Against all Majors, save the Swiss franc

The month ends on Monday, and the dollar is poised to
finish the month lower against all the major currencies, but the Swiss
Broadly speaking, the
technical condition, which we will discuss below, remains fragile and there is
a little sign a significant low is in
 In terms
of policy, investors appear to put
more weight on the forward guidance of central banks that the Federal
Meanwhile, the failure of the health care reform efforts not
only leave the US system is poor shape
but warns the Republican leadership may struggle to overcome the divide between
moderate and conservative factions to pass the economic agenda of the new
administration.  The same broad strategy that was tried with health care is being
employed for tax reform:  base approach solely on slim Republican
majority, develop plan secretly with a small
group of men, hope that it can bridge an intra-party divide that appears bigger
than the inter-party rivalry.  
The hubris of small differences can be
formidable hurdles, and important
legislative action is needed to lift the debt ceiling and to provide spending
authorization for the new fiscal year that begins October 1. 
Maneuvering around the debt ceiling is already distorting
the bill market.  The finesse will likely be exhausted in early October.
 If it is not resolved it could lead
to prioritizing creditors and missing payments.  The failure to agree on
spending authorization could shut the government.  A push back against our argument since the June FOMC meeting that
the Fed would announce the start of its balance sheet operations in September is that the Fed will not want to move
if it looks as if there will be a government shutdown.   The Federal
Reserve seems to try to look past such short-run potential disruptions and
focus its strategic goals.
Although Macron’s honeymoon in France appears
over, and Japan’s Prime Minister Abe’s support is at five-year lows, marooning
his political agenda, the general euro-phoria
and dollar-negativity remain
 The Dollar Index fell
for its third consecutive week, and on Monday, will put the final touches on
its fifth straight monthly loss.    Our assessment is unchanged:
 the technicals are stretched, but
there is nothing convincing to suggest a low is in place.  Previous
support around 94.00 now becomes resistance, and a move above 94.30 would be
encouraging.  However, the downside beckons.   The 93.00 area would
be the next obvious target, but technical support may not be seen until closer to 92.60.
Before the last trading session, the euro was
the strongest major currency year-to-date against the dollar.
  However, the dramatic quarterly expansion in
Sweden of 1.7% sparked a sharp rally in the krona, which has eclipsed the euro.
 In any event, the euro is up 11.5% so far this year and is closing out its fifth consecutive monthly advance with
a three-week streak.  The euro approached $1.1780 before consolidating
ahead of the weekend. The technical indicators are near extreme readings.
 The weekly RSI is at its highest level in a decade.   Yet none of the indicators have turned down.
 As it has done for most of the month, it is climbing the alongside the
upper Bollinger Band (~$1.1775).  Short-term traders seem quicker to take
profits than they may have been before, and participants should continue to be
sensitive to reversal patterns that would signal a potential pull back.
 The near-term trendline drawn off
the lows from the second half of June and mid-July is found near $1.1550 to
start the new week and nearer $1.16 at the end of the end.

The Swiss franc was the only major foreign currency that fell against the dollar last week.  The 2.6% decline was the largest in two years.  Stops triggered in the euro-franc cross, reports of direct investment-related franc sales for yen, and conviction that the SNB will lag behind the other central banks is thought to be behind the move.  The dollar high in June was near CHF0.9785, and the band of resistance extends to CHF0.9810.  The euro reached its best level against the franc since the cap was lifted in mid-January 2015.  While many have set their sights on CHF1.20, but we suspect strong resistance will be seen ahead of CHF1.17.  

The dollar is heavy against the yen, having been repulsed from the JPY112.20 area in the
middle of the week. 
 It closed
below JPY111.00 for the first time since mid-June.  The tone is heavy,
even though the technical indicators are mixed.  The RSI and MACDs are
headed lower, while the Slow Stochastic is trying to turn higher from oversold.
  A break of JPY110.60 would likely spur a move toward psychologically
important JPY110, though technically, more important support is near JPY109.
 The JPY112.00 area offers initial resistance, but it may take a move
above JPY113.00 to be of technical significance.  
Sterling climbed to new post-referendum highs
last week. 
 The technical
indicators are not particularly strong, and the Slow Stochastic has not
confirmed sterling’s rise.  Sterling
has been alternating between advancing and declining weeks since early May.
 This past week sterling advanced
around 0.8% against the dollar, so next week it ought to fall
to keep the pattern intact.  The market’s response to the MPC meeting and
the US jobs data may determine if the saw tooth pattern continues.
 Although support in around $1.2980 may be more important, we suspect that
previous resistance and retracement objective near $1.3055 should hold if this
is a breakout.  The 50% retracement of the depreciation since the
referendum is at $1.3430 (according to Bloomberg data). Meanwhile, the euro is
consolidating a little below GBP0.9000.   The market may make another
attempt, but if penetration occurs,  it may not be sustained.
Just when it looked that
the Canadian dollar, the best performing major currency since the beginning of
May (10%) was going to fall victim to profit-taking, the stronger than expected
May GDP (0.6% on the month and 4.6% year-over-year) gave it new life.
US dollar is found bids ahead of CAD1.2400.  With the market more
confident of a Q4 hike by the Bank of Canada than the Federal Reserve, the
Canadian dollar can move higher.  The technical readings are stretched.    The Slow
Stochastics have been moving sideways in the trough since the start of the month, and the weekly RSI is at its lowest
level since 2007.  However, the Canadian dollar enjoyed strong momentum
ahead of the weekend and closed at its best level since the middle of 2015.
  The CAD1.2130-CAD1.2160 is the next important technical target.
The Australian dollar rallied to its best
level since mid-2015 near $0.8065 before consolidating ahead of the
 Momentum and trend
followers may try to run it higher ($0.8100-$0.8150 is the next important band
of resistance), but the technical indicators warn that the correction or at least a consolidative phase is
near.  As we noted with the euro, the current conditions are often when reversal patterns.  The $0.7875
area marks the lower end of the recent higher range.
The continued dramatic slide
in US crude oil inventories, the announcement of cuts in capex at several large
oil companies, and new export restraint announced by Saudi Arabia (August) and
UAE (September) spurred a rally in oil prices that carried the September light
sweet contract to almost $50 a barrel ahead of the weekend. 
It is the
highest the contract has been since the end of May.   It surged through
the trendline drawn off the April and May
highs ($48.70 on July 31).  It closed higher every day last week, and the
nearly 8.5% gain over the stretch is the most since the end of August 2015. The
gains ensure that the four-month
declining streak is over.  July will be the second month this year that
oil prices rose.  However, the technical indicators are stretched, and the Slow Stochastics are
flat lining.  Initial support is seen
near $48, while the next target is around $52.00-$52.50.
The US 10-year yield has been in a
2.10%-2.40% range since the end of Q1.
recently the range seems to be 2.20%-2.35%.  Yields fell February through May and rose 10
bp in June. The generic 10-year yield rose nearly six basis points last week,
which leaves the yield about a basis point lower than the level at the end of
June. That means the last session of the month will likely determine the net
result for the month. The technical condition of the September 10-year note
futures contract is not particularly strong, though additional gains in the
first part of next week are possible.  The recent high was near 126-12.
  The Slow Stochastics have turned lower, and the MACDs are about to
cross, suggesting some caution may be advised.
US stocks were mostly lower last week.  The Dow Jones rose nearly 1%, but the S&P
500 slipped marginally, due to the pre-weekend decline, and the NASDAQ eased
around 0.3%, with technology a weight in the second half of the week.  
 The S&P 500 drop on July 27 filled the gap created by the higher
opening on July 19.  It proceeded to recovery before consolidating.  
As we noted last week, the technical tone is deteriorating.  The Slow
Stochastics are rolled over, and the MACDs are poised to turn down.  The
RSI is at two-week lows.  It is difficult to speak of meaning resistance
at these uncharted waters.  The 2440-2450 area offers the first level of
support.  The 20-day moving average comes in just above there, and the
S&P 500 has not closed below this average since July 11.  
Separately, the Russell 1000 Value Index eked
out a small increase to extend its advance for the third consecutive week. 
a sharp sell-off Monday, it will have risen for the second consecutive month.
 The technical condition looks vulnerable to a setback.   The Russell
1000 Growth Index fell about 0.35% to break a three-week advancing streak.
  After slipping 0.4% in June, the first losing month since last October,
the Growth Index returned to its winning ways in July with around a 2.8%


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