(Reuters) - The U.S. dollar edged higher against a basket of major rivals on Friday after U.S. jobs data was seen as decent enough to support the possibility of another interest rate increase from the Federal Reserve this year.
Traders initially sold the dollar in a knee-jerk reaction to Labor Department data showing nonfarm payrolls increased by 156,000 last month, below expectations of economists polled by Reuters for a gain of 180,000.
A one-tenth of a percentage point uptick in the unemployment rate to 4.4 percent and tepid wage growth also briefly sent the dollar lower.
The dollar reversed its losses and pushed higher, however, with the euro last down 0.4 percent at $1.1866 after briefly hitting a session high of $1.1979. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.1 percent at 92.801 after initially plunging 0.5 percent.
“If the markets are discounting a December (Fed rate hike) just on the back of this, it’s probably premature,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
The dollar also recovered since it was oversold heading into the employment report, said Alfonso Esparza, senior currency analyst at Oanda in Toronto.
The dollar index is coming off its sixth consecutive monthly decline, although August’s drop of 0.2 percent was the smallest since the streak began in March. Through August, the index had declined 9.3 percent, the worst first eight months to a year since 1986.
The euro hit a more than 2-1/2-year high on Tuesday of $1.2069 after European Central Bank President Mario Draghi made no mention of the euro’s strength at a gathering of central bankers last Friday. The dollar index was set to gain just 0.1 percent for the week after posting its biggest percentage decline in more than a month, of 0.7 percent, last week.
“The (Fed) rate hike is still sort of a question mark, but (Friday’s jobs data) wasn’t that big a miss to take it totally off the table for the rest of the year,” said Oanda’s Esparza.
The dollar was last up 0.2 percent against the yen at 110.21 yen after slumping to a session low of 109.57 yen just after the jobs data. The dollar was set to post its biggest weekly gain against the yen since early July, of about 0.8 percent.
Chart of the Week: US Economy in Decent Shape Despite Drop in Durable Goods Orders
by Fathom Consulting
Durable goods orders may have dropped by nearly 7% month on month in July, but excluding transportation, durable goods orders increased 0.5% during the month, more than our forecast of a 0.3% gain. Core capital goods orders – a key leading indicator for business investment spending – also rose for the sixth time in seven months. With this week’s personal consumption data for July also likely to be positive, suggesting that both consumer spending and business investment got off to a good start this quarter. The first reading on our US Economic Sentiment Indicator (ESI) for Q3, based on July’s business and consumer surveys, was 4.2%, slower than in Q1 and Q2. We have always thought the pace of economic expansion implied by our ESI would decline and that official economic growth would increase in the second half of this year; last Friday’s economic data is consistent with the two converging at around 3%.
COT Report
Right now, guys, CFTC shows interesting data on EUR. Previously, guys, we've estimated that EUR stands in tricky situation. From one point of view, demand on EU currency stands strong and overall sentiment around ECB policy and EU economy is mostly positive. But, at the same time, overall bullish speculative positions stands at near all-time high ~ 99K contracts. And recent 3 month position fluctuates around this level of 90-93K. Usually, when speculative position stands near extreme levels it significantly increases chances on moderate retracement. Because when already everybody stands long there is nobody on purchase size who could support previous pace of buying. When buying drops - market turns to retracement. When positions will be off-loaded by mostly short-term speculators, market again gets ability to rise. This is simple technical background. And now EUR stands precisely in this situation.
Now, take a look at recent data - last week, open interest has increased slightly, while speculative position has dropped. It means that new shorts have come on market. The same situation was on 8th of August week. Thus, some sellers start to appear and although overall long-term situation on EUR looks promising, recent CFTC data shows that retracement' s odds increases.
Technical
Monthly
So, appearing of strong resistance on monthly chart, right at the moment of overloaded speculative bullish positions makes us to be careful with any bullish trades. We have two side-by-side Fib levels at 1.2160-1.2170 area on monthly chart and long-term support/resistance zone, where market stands right now. Monthly OB level stands higher in September and will not be a barrier. All yearly pivots have been broken up on EUR.
As you can see August month shows mostly indecision action. May be shadows of this candle are not as big to call it "high wave" pattern, but by it's nature, it's probably the same. Appearing of "indecision" sign at this moment mostly stands in favor of retracement rather than upside breakout.
It is a bit difficult to talk on depth of possible bounce, but monthly chart tells that it will be probably painless for bullish ambitions, if retracement will not be deeper than 1.14 area. Here we draw previous consolidation as rectangle, but in reality, if you draw upper border based on tops sharply, we will get sloped line and it stands around 1.14 area. That's why re-testing of this line is allowable and overall bullish sentiment will not be harmed:
If we recall USD Index chart as we did last week, here we have bullish "Stretch" pattern, actually. Index is oversold right at 50% Fib support. This situation also mostly stands in favor of USD. Of course, monthly chart is rather big picture and we should not treat numbers as precise levels. Mostly they are some ranges around. But they work in the same manner as on lower time frames. It means that price could fluctuate around, but sooner rather than later it will respond to support and retracement will happen. Ultimately, here we could get even H&S pattern, thus, retracement could be much stronger, compares to our minimal estimations.
Weekly
On weekly chart we have difficult situation because we do not have any tools to say whether market could climb slightly higher, or all visible targets have been achieved already and it could freely start move down. All that we have is just monthly resistance levels and, here - 1.27 major extension of big retracement plus new MPR1 in the same 1.21 area.
Last week market has not formed something special, no reversal weeks either, no Overbought. Here we could only talk on possible retracement levels that could be reached. I've drawn here sloped line that we've mentioned above and it stands in an area of K-support here.
This is our ultimate level for retracement that is allowable by bullish sentiment. If EUR will break it then medium-term picture will change. But, retracement also could be smaller. Currently weekly chart doesn't provide any clear information. Based on Pivot point framework, we could suggest - as price has dropped below MPP, it could start moving to MPS1 and previous tops around 1.16-1.17 area...
Daily
So, guys, by brief look at daily chart, it seems that our long-term analysis and discussion has minor sense. Just because we have the floor for coming week around daily OS area and Fib level. And market stands rather close to it.
Yes, we have wider bearish divergence with MACD and it comes at monthly resistance. Thus, this is probably major pattern, but it also long played pattern. Meantime, we could get some shorter patterns and setups first.
Currently intrigue stands around bullish grabber that has been formed on Thursday. Its invalidation point stands very close to daily support of Oversold and Fib level. It means that somewhere in this area we need to watch for intraday bullish patterns. If we will not get any and market will drop through this level - this will be the sign that our divergence takes the lead and deeper retracement starts:
Intraday
In fact, on Friday, by spike up, right after NFP has been released market has formed "222" Sell pattern on hourly chart. This spike also has completed our suggestion of upside action and our H&S target in shape of AB=CD pattern:
At the same time, on 4-hour chart we've got bearish grabbers that suggest drop below recent lows. This, in turn, could lead to erasing of daily grabber:
That's why, taking in consideration sentiment analysis and fundamental issues, I suggest that it would be better to wait how situation will be resolved with these grabbers. May be market will form butterfly "buy" later in the week or some other pattern, but definitely it is not reasonable to take risk right now and go long immediately. Besides, we stand at hazard of possible collapse, if retracement that we've discussed above is starting right now.
Conclusion:
In very long term perspective EUR looks positive as monthly USD index could form huge H&S pattern.
In shorter-term perspective it is unclear yet, whether monthly retracement is starting, or EUR will show some attempt to go higher first. We should get clarity on coming week. If EUR will drop below 1.18 area and erase bullish patterns on daily chart, then deeper retracement starts. But while bullish grabber stands valid, EUR keeps chance on final leg up before retracement.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
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