Dollar ended higher last week as the better than expected non-farm payroll raised expectation of a Fed hike this year. But it's still overwhelmed by Aussie and yen, which were the strongest major currencies. Job growth was strong at 255k in July with solid wage growth of 0.3% mom. However, it should be noted again other data have been lackluster recently. Q2 GDP grew a mere 1.2% qoq. Both ISM indices dropped in July even though staying well above 50. While some Fed officials like Atlanta Fed president Dennis Lockhart said he didn't rule out a September hike, there is little evidence that Fed will move soon. Currently, fed fund futures are only pricing in 15% chance of a September hike. Odds for December hike is at 43.4%, still below 50%. More in needed to get dollar out of recent consolidations.
Dollar index defended 95 handle and rebounded strongly last week but near term outlook is mixed for the moment. So far, the rise from 91.91 has been weak with daily MACD dipping back to 0. There is also no convincing impulsive structure yet. Hence we'll say near term in dollar index in spite of the strong rebound of Friday. Below 95.00 will suggests that rebound form 91.91 is merely a correction and would target a 91.91/93.01 support zone first. Meanwhile, above 97.56, accompanied by upside acceleration, would pave the way for a test on 100.39/51 long term resistance zone.
Stocks responded positively to the data though, with Nasdaq and S&P 500 closing at records last week. SPX's long term up trend fro 2209 low of 666.79 resumed after brief retreat. It's still on course to next medium term target of 61.8% projection of 1074.77 to 2134.71 from 1810.10 at 2465.14. DJIA closed strongly at 18543.53 and will likely follow and make new record highs this week. We'd maintain that strength in stocks will make it easier for Fed to hike rates and help support the greenback.
Elsewhere, Sterling ended the week as the weakest major currency after BoE's easing. BOE voted unanimously to cut the Bank rate by -25 bps to 0.25%. The members generally expect more reduction later this year. Falling to the upper end of our forecast, it also expanded the asset purchase program by 70B pound to 445B pound, of which 60B pound is for the purchases of government bonds over 6 months and 10B pound for sterling non-financial investment-grade corporate bonds purchases over 18 months. The members were split on QE measures with 6-3 vote (Kristin Forbes, Ian McCafferty and Martin Weale dissented) in favor of increasing the government bonds purchases and 8-1 vote (Kristin Forbes dissented) in favor of corporate bond purchases. Policymakers also added a 100B pound loan program for banks. The staff trimmed the GDP growth forecasts for 2017 but upgrade the inflation outlook, expecting it to breach the 2% target by the end of next year. More in BOE Cut Rate, Expanded QE, Trimmed Growth Forecasts.
Regarding trading strategy, we'd sold GBP/JPY at 135.25 last week and the trade is doing well with the cross closed down at 133.01. We'll stay short in GBP/JPY for first target at 128.66, with stop lowered to 135.50, close to a minor structure resistance. There is prospect of resuming the down trend fro 195.86 but we'll keep an eye on the downside momentum first.