USD Fights back on Jobs Data

Last week's currency trading review

The Dollar rebounded against every currency on Friday showing surprising strength after the NFP report resulted in US interest rate hike expectations increasing. The end of the US recession talk also help inspire fresh strength. July Non Farm Unemployment Change was -247k vs. -320k forecast and the Unemployment rate dropped to 9.4% vs. 9.6% forecast. ISM July Manufacturing at 48.9 vs. 44.8 previously and ISM Non Manufacturing at 46.4 vs. 47 previously. Pending Home Sales also +3.6% in June added to the barrage of better than forecast data releases. The Euro was extremely strong until Friday as it tracked the S&P above 1000, breaking to above 1.4400 for fresh monthly highs. ECB met and kept at 1.0% and President Trichet was neutral to dovish on the recovery front. The EUR/USD fell -0.53% closing at 1.4182, after opening the week at 1.4257.

The Japanese Yen collapsed on Friday as USD/JPY broke out of a major channel and risk sentiment hit year highs on large gains in US stocks. EUR/JPY and AUD/JPY all hit year highs and the market is set for more gains as carry trades come back into vogue on increasing rate hike expectations. Leading Indicators gained 2.9% in July. The USD/JPY closed up 2.98% at 97.56 after opening the week at 94.65. The GBP tested year highs above 1.7000 then fell heavily as the BOE expanded there QE program by much more than forecast 50Bn. Adding to pressure was the Friday's USD strength although GBP/JPY managed to finish significantly higher. Other economic data was positive with Manufacturing PMI regaining the expansionary 50.4 level and Services PMI rising to 53.2 in July. GBP/USD fell -0.18% closing at 1.6683 after opening at 1.6713. The AUD was pulled marginally lower of Friday as the USD strengthened but a host of strong local data releases and AUD/JPY buying supported. The AUD naturally tracks the S&P and this helped to limit losses. June Unemployment gained 32k vs. -20k forecast and the RBA meeting change rhetoric to neutral from dovish as they held at 3.0%. The AUD/USD closed up 0.23% at 0.8392 after opening at 0.8373.

The forex trading week preview

In the States; On Tuesday, Q2 Productivity forecast at 5.3% vs. 1.6% previously and Q2 Labor Costs forecast at -2.3% vs. 3.05 previously. On Wednesday, Trade Balance forecast at -28.5bn vs. -26.0bn previously. Also on Wednesday the main event risk with FOMC Rate decision forecast to remain at 0.25% but focus will be on the accompanying statement. On Thursday, July Retail Sale forecast at 0.4% vs. 0.6% previously. Also released, Weekly jobless claims forecast at 540k vs. 550k previously. On Friday, Industrial Production in July forecast at 0.15 vs. -0.4% previously. Also released, UoM Consumer Confidence forecast at 68.5 vs. 66 previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, German CPI is forecast at -0.6% y/y. On Wednesday, EU June Industrial Production is forecast at 0.2% vs. 0.5% previously. On Thursday German GDP Q2 is forecast at -0.2% while on Friday EU GDP Q2 forecast at -0.5% vs. -2.5% previously. Also Released EU CPI is forecast at -0.6% y/y vs. -0.1% previously. In the UK; On Wednesday, July Claimant Count Rate is forecast at 4.9% vs. 4.8% previously. Jobless Claims Change is forecast at 28k vs. 23k previously. The main event risk is the BOE Quarterly Inflation report and speech from Governor King also on Wednesday. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Tuesday, BOJ rate meeting forecast to remain at 0.1%. On Friday, BOJ Minutes are released and Tertiary Industry Activity is forecast at -0.35 vs. -0.1% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Australia; light data week with Westpac Consumer Sentiment on Wednesday and Governor Stevens speaking on Friday. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.4109

1.4155

1.4195

1.4447

1.4621

USD/JPY

93.10

94.02

97.35

97.79

98.89

GBP/USD

1.6474

1.6653

1.6686

1.7043

1.7198

AUD/USD

0.8238

0.8340

0.8370

0.8519

0.8694

XAU/USD

932.00

951.00

953.00

971.00

990.00


Euro - 1.4195
Initial support at 1.4155 (July 28 low) followed by 1.4109 (0.764 of 1.4004-1.4490). Initial resistance is now located at 1.4447 (AUG 5 high) followed by 1.4621 (61.8% retrace 1.6038 -1.2330 )

Yen - 97.35
Initial support is located at 94.02 (Jul 29 low) followed by 93.10 (July 22 low). Initial resistance is now at 97.79 (AUG 7 high) followed by 98.89 (June 4 high).

Pound - 1.6686
Initial support at 1.6653 (AUG 7 low) followed by 1.6474 (Jul 31 low). Initial resistance is now at 1.7043 (AUG 5 high) followed by 1.7198 (Oct 20 high).

Australian Dollar - 0.8370
Initial support at 0.8340 (AUG 3 low) followed by the 0.8238 (July 31 low). Initial resistance is now at 0.8519 (Sept 22 high) followed by 0.8694 (Aug 28 low).

Gold - 953
Initial support at 951 (AUG 5 low) followed by 932 (July 31 low). Initial resistance is now at 971 (AUG 6 high) followed by 990 (Jun 3 high).