Fundamental and Technical Outlook: Dollar Index

Fundamental Outlook: Dollar Index

In a week dominated by USD buying, yesterday's US payrolls initiated a strong sell off as the headline number missed consensus to print 151k for Aug, along with an unchanged rate of 4.9% (median f/c 4.8%).  We saw the USD hit hard in the immediate aftermath of the release, but led by USD/JPY, which fell from the mid 103.00’s, the pair found strong demand to reclaim 103.00, going on to push through 104.00, with highs above 104.25 printed into the London close.

Yields rose following the headline NFP miss, although traders eventually concluded that this data took precedence over yesterday's weak ISM and leaving the door open to the Fed in September. Analysts at Informa note that the curve steepening somewhat negating this hypothesis, but go onto say that thin liquidity ahead of the long weekend may have been the overriding factor.

Stocks were bid after the NFP report and remained so throughout the session. Healthcare was the underperforming sector in the S&P 500, with Mylan lagging once again as the EpiPen scandal continues to hurt the company’s stock. DJIA finished higher by 0.39% at 18,491.65 S&P closed up 0.42% at 2,179.97 and Nasdaq 100 higher by 0.31% at 4,798.74.

Looking ahead next week’s highlights include rate decisions from the ECB and BoC, as well as PMIs from across Europe and UK and Chinese CPI and Aussie GDP.

Source: RANsquawk

Technical Outlook: DXY (Weekly)



Indicators: Bullish (50 sma above 200 sma)

Summary: The price is still trading within a long-term consolidation in a rectangle chart formation. A well supported 4 months uptrend line is currently supporting a minor uptrend momentum. I am not expecting any huge upside/downside yet unless either end of the rectangle is broken.

Weekly Closing Wrap

In European Equity Markets stocks rose on Friday, with a leading regional equity index reaching its highest level since late May, as weaker-than-expected U.S jobs data led investors to pare back bets on an imminent U.S. interest rate hike. The pan-European STOXX 600 index closed nearly 2 percent higher at 350.44 points, its best level since late May. The STOXX Europe 600 Utilities outperformed with a 2.8 percent rise, with France's Veolia advancing 4.9 percent as investors welcomed the company's issuance of a 1 billion Renminbi 'Panda' bond. SBM lost 11.5 percent after prosecutors in Brazil rejected a deal allowing the Dutch energy services company to avoid prosecution for corruption related to contracts with oil group Petrobras.

In Currency Markets the U.S. dollar gained on Friday, erasing earlier losses, as investors viewed the Federal Reserve as still likely to raise interest rates in the coming months, despite disappointing jobs growth in August. The greenback also jumped 0.98 percent to 104.27 yen, the highest level since July 29. The euro fell 0.29 percent to at $1.1164, erasing earlier gains and after hitting session highs of 1.1252. Sterling advanced 0.31 percent at a fresh one-month high of $1.3309. The Australian and New Zealand dollars pared gains, with Aussie steady at $0.7555 and with kiwi almost unchanged at $0.7284. The dollar index rose 0.28 percent to 95.904, after earlier falling to 95.189, the lowest level since last Friday.

In Commodities Markets oil prices rose 3 percent on Friday as a report showing weaker U.S. jobs growth in August suppressed the dollar, pushing up commodities, but crude futures remained on track for a big weekly loss on glut concerns. Brent crude futures were up 3 percent, at $46.83 a barrel. U.S. West Texas Intermediate futures gained 3 percent, to $44.46. Spot gold jumped to a session high of $1,328.73 after the non-farm payrolls data, and was up 0.8 percent at $1,312.79 an ounce. Silver was up more than 2 percent after the jobs data, touching a two-week high of $19.29 at one point. Platinum rose 0.8 percent to $1,053.20 an ounce while palladium gained 0.84 to $669.05 an ounce.

In US Equity Markets stocks were higher on Friday after data showed U.S. employment growth in August was slower than expected, which could rule out an interest rate increase this month. The S&P 500 was up 0.51 percent, at 2,181.96 and the Nasdaq Composite was up 0.57 percent, at 5,257.21. All 10 major S&P sectors were higher, with the consumer staples index's 0.77 percent rise leading the advancers.  Lululemon Athletica fell 9.4 percent after the Canadian yoga wear retailer reported quarterly comparable-sales growth below expectations. Ambarella was down 6.6 percent after the video processing chip maker reported a fall in quarterly sales. Smith & Wesson was down 6.5 percent after brokerage Craig Hallum downgraded the gun maker.

In Bond Markets U.S. Treasury yields on longer-dated maturities rose on Friday, with shorter-dated yields flat, after a weaker-than-expected U.S. non-farm payrolls report that suggested the Federal Reserve was unlikely to raise U.S. short-term interest rates this month. Friday's Labor Department report showed U.S. employers added 151,000 jobs in August. Benchmark 10-year Treasuries were down 13/32 in price to yield 1.614 percent. After the data, yields on the 10-year note had fallen to 1.543 percent, the lowest level in since Aug. 26. The 30-year Treasury bond fell 1-7/32 in price to a session high of 2.28 percent, its highest since Aug. 23.

Source: Institute of Trading and Portfolio Management