The employment data from US was the highlight of last week and was well received by the markets. The 284k growth in NFP in June showed that May's surprising low number was just a blip and temporary rather than the start of a trend. The rise in unemployment rate to 4.9 was seen as a sign that more people are entering back into the workforce. Participation rate did rise slightly from 62.6% to 62.7%. As a response to the data, DJIA surged 250 pts, or 1.4% on Friday to close at 18146.74. S&P 500 also rose 32 pts, or 1.53% to close at 2129.9. Both are now very close to historical high of 18351.36 and 2134.71 respectively. Dollar index was mildly higher over the week and maintained near term bullishness. Meanwhile, fed fund futures are pricing starting to price in more chance of a rate hike by Fed in December, up to 23.5%. We'd probably see more strength in US equities and Dollar this week.
DJIA finally took out 18000 handle last week to close firmly at 18146.74. The rise from 15450.45 is very likely resuming and DJIA should now target 18351.36 historical high this week. Decisive break there will confirm long term up trend resumption. Next near term target will be 61.8% projection of 15450.56 to 18167.63 from 17063.08 at 18742.22. Next medium term target will be 61.8% projection of 10404.49 to 18351.36 from 15450.56 at 20361.72. This bullish view will be preferred as long as 17713.45 support holds. And we'd like to point out that momentum in US equities will give Fed more confidence to resume policy accommodations by hiking interest rate later in the year. And that should be supportive to the greenback too.
Dollar index stayed in tight range below 96.70 last week with a rally attempt. There is no enough momentum for a breakout yet but bullish outlook is maintained nonetheless. Rise form 91.91 should still be in progress and break of 96.70 will target 100% projection of 91.91 to 95.96 from 93.01 at 97.06 next, with prospect of targeting 161.8% projection at 99.56. Also, the whole consolidation pattern from 100.39 could have finished with three waves down to 91.91 already too and the larger up trend might be resuming. Upside acceleration after breaking 97.06 will add more credence to this case. And in any case, this will be our preferred view as long as 95.33 support holds.
BoE rate decision will be the major focus this week. Governor Mark Carney has already indicated that there will be further policy easing this "summer". There are expectations that the central bank will cut interest rate this week, for the first time since 2009 to stabilize the economy. Nonetheless, there are are also talks that BoE would opt for easing in August meeting. Sterling remains the weakest major currency this month, losing -5.5% against Yen, -4.4% against Aussie and -2.8% against Dollar. More weakness could be seen if BoE deliver a dovish rate cut.
Regarding trading strategies, we were too conservative in trying to sell GBP/USD on recovery to 1.37. GBP/USD just hit 1.334 and the resumed recent fall through 1.3 handle. More downside is likely in Sterling this week but we'll stay a bit cautious as the post-Brexit selloff now looks a bit exhausted. We're favoring more strength in the greenback as NFP boosted overall sentiments in US. Since commodity currencies will be supported by risk sentiments, we'll avoid selling them against Dollar. Yen is a tricky one as BoJ might not be ready for more easing in near term and traders would still try to push it higher. Euro and Swiss Franc are two good candidates to sell against dollar this week. As USD/CHF took the lead by taking out 0.9836 minor resistance last week, we'll go for this pair. We'll just buy USD/CHF at market when the week opens with at tight stop at 0.9750. Initial target is 0.9955 resistance but we're looking at a take on 1.0255/0327 later in Q3.