The Dollar Might Receive a Boost from the Employment Report

The robust US employment report before the weekend allowed the dollar to recoup the losses it experienced earlier in the week against most of the major currencies.  The Australian dollar and Japanese yen managed to hold onto minor gains for the week. 

The US Dollar Index stalled in front of a band of resistance (96.45-96.55), which houses the 61.8% retracement of the decline from July 27 (97.55) and the 20-day moving average.

For a Clearer Picture, Use the Real Trade-Weighed Dollar

This Great Graphic, created on Bloomberg, depicts the Federal Reserve's real broad trade-weighted index of the dollar.  Real means that it is adjusted for inflation differentials.   Broad means that it covers a wide number of US partners.   Trade-weighted means that the countries that the US has more trade with are given greater role in the index.

July was the third consecutive month that this measure of the dollar appreciated and the fourth month of the year.

Currencies React to the RBA Rate Cut

The US dollar is offered against the major currencies, but appreciating against many emerging market currencies, include the South African rand and Turkish lira.  Oil prices are trying to stabilize with Brent near $42 and WTI near $40, but the recent losses continue to weigh on the Malaysian ringgit and the Mexican peso. 

CFTC: The Euro Bears Make a Move, but That's about It

There does not seem to be a large pattern in the speculative position adjustments in the CFTC reporting week ending July 26.  There was only one significant position adjustment (10k of more contracts).  The euro bears added another 10.3k contracts to their gross short position, which brought it to 221.8k contracts.

This is this is the largest gross short position since early January.  It is the fifth consecutive increase.  The speculative gross short position was near 123k contracts in mid-May. 

Several Variables Help Explain the Canadian Dollar

Our informal and simple model for the Canadian dollar has three variables: oil, interest rates, and general risk environment.  Over time, the coefficient of the variables can and do change. 

Of the three variables, the general risk environment is the most supportive of the Canadian dollar.  Between the BOJ and ECB more than $150 bln a month of central bank, credits are being created.  This is one of the key factors driving interest rates down in Europe and Japan.

Slow Start for the Dollar

What promises to be a busy week has begun off slowly.  The US dollar has been largely confined to its pre-weekend ranges against most of the major currencies. 

CFTC: Euro Bears Coming Out of the Woods

Speculators made several significant position adjustments in the CFTC reporting period ending 19 July.  The euro bears added to their gross short position for the fourth consecutive week and for the ninth week in the past ten.  The 16.2k contract increase lifted the gross short position to 211.5k contracts, the largest since the first week of the year.

(Some) Money Markets Float On this October

The weighted average of the Fed funds rate has edged higher.  Following the Fed hike in December 2015, the Fed funds average around 36 bp in January before moving into a 37-38 bp range.  However, since the UK referendum it has been trading consistently around 40 bp. 

The Fed fund futures contract settles at the average effective Fed funds rate for a given month, not at the policy rate.  Ahead of next week's FOMC meeting where practically no one expects a change in policy, implied yield of the July Fed funds futures contract is 40.25 bp.