The dollar has jumped in the wake of Friday's Non-farm Payrolls report. However what has really changed, and is this a move that can be sustained by the dollar? We look at what the key factors to watch out for this week and the outlook for forex, equities and commodities markets with a technical analysis of the major instruments.

1. Weekly Outlook
Monday 7th August by Richard Perry, Market Analyst
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WHEN: Friday 11th August, 1330BST
LAST: Headline +1.6%, Core +1.7%
FORECAST: Headline +1.7%, Core +1.7%
Impact: Falling inflation has been a real issue for the
Fed. As the US economy seemingly comes close to
reaching full employment the theory of the Phillips
Curve suggests that inflation (or at least wage growth
that eventually feeds through to inflation) should begin
to tick higher. The Fed does not go by the CPI but the
key inflation measure has been falling throughout this
year. With wages struggling, the continuation of low
inflation is threatening the Fed’s tightening cycle.
Treasury yields throughout the curve will be sensitive to
the CPI, driving reactions on the dollar and gold.
Key Economic Events
Date Time Country Indicator Consensus Last
Mon 7th Aug 15:00 US Fed Labor Market Conditions 1.5
Tue 8th Aug n/a China Trade Balance (Exports / Imports) $46.1bn (+10.9%/+16.6%) $42.8bn (+11.3%/+17.2%)
Tue 8th Aug 15:00 US JOLTS job openings 5.66m 5.67m
Wed 9th Aug 02:30 China CPI / PPI +1.5% / +5.5% +1.5% / +5.5%
Wed 9th Aug 15:30 US EIA Crude Oil Inventories -1.5m
Wed 9th Aug 18:01 US 10 year Treasury auction
Wed 9th Aug 22:00 New Zealand RBNZ monetary policy +1.75% +1.75%
Thu 10th Aug 09:30 UK Industrial Production (YoY) -0.1% -0.3%
Thu 10th Aug 13:30 US PPI (headline & core) +2.2% / +2.1% +2.0% / +1.9%
Fri 11th Aug 13:30 US CPI (headline & core) +1.7% / +1.7% +1.6% / +1.7%
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
Inflation, or the lack thereof, seems to be the FOMC’s big conundrum. The Fed is tightening monetary policy, that
much is for sure, however there are question marks over the speed of the tightening. Throughout 2017 the FOMC
dot plots and speakers have been suggesting that there will be three hikes this year. However, all the while,
inflation has been steadily falling. US economic data suggests that growth continues to trudge along at an
unspectacular pace. However, the consistent failure for inflation to be moving towards the Fed’s 2% target will be
increasing the doubt in the minds of the FOMC that they are doing the right thing in pushing ahead. On Friday we
saw average hourly earnings staying at +2.5% for the year. Although Bloomberg TV ran with the line that the labor
market was taking off, I have to sceptically disagree. This payrolls report simply increases the nagging doubt in the
minds of the Fed that the Phillips Curve is struggling to justify its existence. With productivity so low, jobs creation
seen primarily at the lower end of the wage spectrum, arguments that automation of jobs may just have changed
the paradigm to an extent that the Phillips Curve (i.e. Unemployment and wage growth are inversely correlated) no
longer applies. The market reacted with marginal dollar strength but this is likely to be short lived. Focus will turn to
US CPI on Friday but for now nothing really changes with Friday’s payrolls.
Must Watch for: US CPI
US CPI
Both core and headline CPI have been falling throughout 2017 but
an uptick in core CPI would be a key move

2. Weekly Outlook
Monday 7th August by Richard Perry, Market Analyst
Foreign Exchange
The stronger than expected Non-farm Payrolls report has driven a recovery in the dollar. The question is
whether this is the beginning of a bull run for the dollar, or simply a move that is likely to generate another
chance to sell. Technically we see the recent trends on USD/JPY and GBP/USD being tested. However, even if
these are broken there is still much to be done for the dollar bulls to sustainably drive a turnaround. The US
Dollar Index has recently broken the key June 2016 low (posted the day of Brexit) at 93.0 but seems to have
averted the big key support of 91.91 from May 2016. On the most basic of calculations, according to The
Economist’s Big Mac Index, the fair value for the Euro is $1.35, so currently at just over $1.18 the euro is still
12% undervalued. As for sterling, the Big Mac Index suggests that fair value is $1.66 which means compared to
the current valuation of just under $1.31 sterling is as much as 22% undervalued. However, what we also have
is the net euro futures positioning at the most stretched on the long side since 2011, whilst the CFTC data also
shows the market has just gone net short the dollar for the first time since May 2014. There could easily be an
unwinding move at some stage on the long euro/short dollar positioning. However, I do not believe there was
enough in this payrolls report for it to be now. If US CPI surprised to the upside on Friday though it could begin
to drive the move which would mean a dollar rally. For now, this is still likely to be a failed move for dollar bulls.
WATCH FOR: US CPI on Friday dominates a week light on key data
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FX Outlook
USD/JPY
Watch for: A closing break above 111.00 is key
for the bulls this week
Outlook: The positive dollar reaction in the wake
of the Non-farm Payrolls report on Friday has
broken downtrend has improved the prospects
for the bulls but this will remain a consolidation
whilst the resistance levels remain intact. A small
base completes on a close above 111.00 and
this is the focus for the bulls initially. An upside
break would then imply 112.20. Momentum
indicators have improved but still need to build
traction if a recovery is not simply going to be
sold into again. The support at 109.82 is now
key to preventing a retreat to the June lows at
108.80.
EUR/USD
Watch for: Corrections remain a chance to buy
for a retest of $1.1909 in due course.
Outlook: The strengthening of the dollar in the
wake of payrolls has negatively impacted on the
chart on a near term basis. Aside from a small 3
week uptrend being broken, nothing has yet
been seen that changes the outlook. Support
levels remain intact with $1.1614 and $1.1711
still intact. The market is trading above all the
rising moving averages and a four month
uptrend is firmly intact. Corrections remain a
chance to buy. Momentum indicators also
remain positively configured. Whilst the support
at $1.1711 remains intact the preference will
remain a retest of the high at $1.1909.

3. Weekly Outlook
Monday 7th August by Richard Perry, Market Analyst
Equity Markets
There are two factors driving equity markets at the moment, earnings season and the relative strength of
currencies. However there are drastically varied performance on Wall Street, London and Eurozone markets to
consider. US earnings season is winding down, but has been strong and supportive with earnings growth
expected to be around 10%. Coming as the US dollar has been weakening, with reducing expectations of Fed
tightening, this is a good time to be overweight US equities (especially relative to European equities). The Dow
has been consistently pushing new all-time highs. However, the S&P 500 is an interesting laggard of the Dow,
with the S&P threatening corrective signals. I feel that the S&P is close to topping out in the near term and a
corrective move could hit Wall Street in the coming days/weeks. A move below 2460 would be a near term
technical top pattern on the S&P 500. Take the DAX too, despite earnings season in Europe being so strong,
the strength of the Euro is a real issue for the export heavy German market. The DAX has fallen back to test its
long term uptrend in the past week, an uptrend that is currently holding. The reaction of the DAX to the dollar
strength/euro weakness on Friday suggests that a correction on EUR/USD would do the DAX the power of
good. Resistance at 12,340 is the first barrier but a move above 12,575 is also needed to confirm. Interestingly
too, the FTSE has been helped higher in recent days by a corrective move on sterling. The Bank of England
were somewhat downbeat on inflation and growth and the first hike is not expected until Q3 2018. This sterling
correction has driven a break above 7515 that has opened the 7599 all-time high again.
WATCH FOR: Currency moves remain key, with US CPI a big driver on Friday
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DAX Xetra
Watch for: Can the bulls break the shackles of
the old key lows this week?
Outlook: The sharp rally on Friday in the wake
of payrolls has gone a long way towards
improving sentiment, but there has been a
consistent run of not only lower highs but also
failure at old key supports. The bulls will be
looking to rectify the first of these impediments to
a rally with a close above 12,316 this week. The
interesting facto for the longer term chart is that
seemingly now the bulls can hold on to the
primary uptrend support which comes in
between 12,170/12,200 this week. Momentum
indicators are looking close to posting bullish
signals. Resistance is 12,575 with the July high
at 12,676.
FTSE 100
Watch for: A closing breakout above 7515 re-
opens the highs at 7599
Outlook: FTSE 100 has been in a messy phase
of trading for several weeks now but seemingly
in the wake of Non-farm Payrolls the market has
burst higher. The resistance at 7515 was
breached on Friday taking the market to a six
week high. A closing breakout would now open
the all-time high at 7599 from May. Momentum
indicators have been struggling until the past
couple of sessions but are now looking to tick
higher again. Another positive session would
help to generate traction that the bulls would be
able to back. Initial support at 7447 and then
strong at 7300/7340.
Index Outlook

4. Weekly Outlook
Monday 7th August by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold has broken the $1260 pivot and also the support of a four week uptrend. Will this continue to correct? It
will depend upon the length of the rally the dollar gets from the payrolls report. Positive headline data and stable
earnings seem to have been viewed as dollar positive but there is still a lack of wage growth that should mean
the dollar rally is limited. Gold traders will be looking at the US CPI reading on Friday and if the reading ticks
higher then this could be the big trigger for dollar direction in the coming few weeks, potentially triggering a
dollar rally / gold correction. For the market to price for a December Fed hike, the inflation needs to pick up, so
Friday is key. Silver has already broken its 5 week uptrend and gold is now threatening. Oil markets have been
more interested in the supply dynamics. OPEC production for July reached record levels for 2017 at 26.11m
barrels per day. This was driven by continued increases in Nigerian production. Coming as US production at
9.43m was the highest since August 2015, the oil price rally has faltered. Support could be tested this week.
US yields pulled higher in the wake of Friday’s payrolls and with no rate hike imminent, this has helped to
steepen the curve again. It is also interesting to see that the divergence of the yield spread of the Bund under
Treasuries finally seems to be impacting on the euro. The spread has been widening in recent weeks as the
Bund yields have fallen more than Treasury yields and Friday’s payrolls have now broken a month trend.
WATCH FOR: Auction for 10 year Treasuries on Wednesday, US CPI will be key on Friday.
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Gold
Watch for: The $1240/$1260 trading range
seems to be back in play
Outlook: The four week uptrend is breaking
down as the market has pushed decisively below
the $1260 pivot. Is this the end of the bull
recovery? Maybe so for now, but the market may
now retreat into the support band $1240/$1260
which has been the $20 within the middle of the
$1200/$1300 trading range that has played out
during 2017. Momentum indicators are rolling
over and a confirmed Stochastics sell signal in
conjunction with a bear cross on the MACD lines
and RSI below 50 would all be the negative
signals to confirm the topping out. A close below
$1240 would re-open the range lows.
Markets Outlook
Brent Crude oil
Watch for: Consolidation means resistance at
$53 and support at $50.88 is key this week
Outlook: Oil is into a messy consolidation now
as the rally has failed around an old historic pivot
at $53. The resistance remains key this week
amid the consolidation. Momentum indicators
are still positively configured but they have tailed
off a touch. The key level to watch on the
downside is the support at $50.88 as a breach
would form a small top pattern and imply a move
back below the psychological $50. The support
of a six week uptrend of the medium term
recovery comes in at $49 this week For now
though the market is consolidating.

5. Weekly Outlook
Monday 7th August by Richard Perry, Market Analyst
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