Another week of a bouncing and falling USD leaves the market close to where it began the previous week. The 10-year yield bounced around last week as well where the low print of 2.67% was driven by the recession talk. Further Fed hikes were being questioned and the dollar was sliding to match. Friday morning’s non-farm payroll number was fantastic; 528K new jobs and a rate of 3.5%! This was double the number of jobs that was forecast, and the rate matches the pre-covid 2020 level. After this data was released the yield on the 10-year closed the week at 2.83%, and the dollar jumped. The September Fed rate hike is now back on track for another 75 basis points. Oil prices fell to $88 / barrel as demand is falling with the global slowdown. This can be what the economy needs to slow down the runaway inflation. We assume this is the outcome the Fed, and other central banks are looking for.

In the meantime the USD remains supported. Higher interest rates versus those in most other developed countries is what will drive its strength. The coming week will provide the market with CPI and PPI with more inflationary data that will keep the market on edge. Of course, the Fed have long since stated those are not the primary inflation numbers they look at.

EUR (1.0165): The single currency rallied to 1.0261 early last week as short positions were unwound ahead of the U.S. payroll numbers. The low of 1.0150 was the first stop before another rally to 1.0250 immediately ahead of the number. The strong data and the rally in U.S. yields did push the dollar higher and euro back toward that 1.0150 level. The first level of support is 1.0095 and then 1.0050.

GBP (1.2075): The BoE did raise rates 50 basis points last week, as expected. The sterling traded in the typical “buy the rumor, sell the fact” where the pound rallied to 1.2250 before the accouchement and fell to 1.2003 after the NPF number. The head fake is not unusual and does provide a clue to the strength of the sellers. The trend for the GBP remains lower and the 1.1900 / 1.2000 area is key support. Rallies should be sold unless it manages a close above 1.2250. We remain targeting 1.1400.

JPY (135.10): The yen was one of the most volatile currencies over the last two weeks. Following the U.S. yields, USD/JPY fell to a low of 130.38 on August 2 and that was after dealing above 140.00 after Abe was assassinated. Now that the weak long positions have been washed out, and U.S. yields are moving higher again, there is no surprise to see the yen weaken. 140.00 is a major resistance area and depending on the U.S. inflation numbers it could be tested by week’s end. Support is the low of 130.38. This is a large range but not unusual after such a large move over the last two weeks.

CAD (1.2930): Again the Canadian has weakened. The quick and large fall in oil prices put the damper on any rally that we thought was going to push the Canadian dollar to 1.2350. Now, it is set up for another test of the recent level of 1.3225! A close above that level should push the U.S. dollar to 1.3500. At this point, it is all about oil.

MXN (20.4000): Nothing new in the peso market. The range of 19.4100 to 21.0500 has contained the currency against the U.S. dollar since May. The daily chart is sketching out a falling wedge, which should lead to another test of the 21.0500 area. We have suggested many times (nearly every week), any peso weakness should be purchased using forward contracts to cheapen up future peso expenses.

CNH (6.7650): No change in the story of the Chinese yuan. The PBOC will be keeping the currency in a tight and boring range. Keep an eye on the 6.8400 area. This is resistance. A close above would keep the dollar rally intact and a test of 7.0000.