Dollar Posts First Weekly Gain in Four as Shorts Capitulate

(Bloomberg) -- The dollar saw its biggest advance since Jan. 26 after the July U.S. jobs report showed stronger-than-expected employment and wage gains, spurring the greenback to its first weekly gain since early July.

The Bloomberg dollar index rose as much as 0.8% and the greenback was higher versus all of its G-10 peers after the jobs data beat economists’ forecasts. The dollar extended its rally as a second wave of buying emerged in what appeared to be position capitulation, traders in London and New York said. Additional gains came as White House economic adviser Gary Cohn said that he’s “confident” tax reform can be accomplished by year-end.

• While the dollar rose after the data, analysts were disinclined to expect the gains to last. The report does little to change the Fed’s policy outlook and should have a limited market impact in long term, said Matt Weller, senior market analyst at Faraday Research in Grand Rapids, Mich.
  • Change in nonfarm payrolls (July) was +209k vs est. +180k; average hourly earnings 0.3% m/m vs prior 0.2%; unemployment rate 4.3% vs prior 4.4%
  • To read more about what analysts thought of the U.S. nonfarm payrolls report, see Research Roundup: Solid U.S. Labor Data Support Fed Action
• EUR/USD fell to a fresh low for the day at 1.1728 after climbing as high as 1.1893 late Thursday, when the dollar held a more defensive tone following the report that Special Counsel Robert Mueller had impaneled a grand jury in connection with his investigation into Russian meddling in last year’s U.S. elections. 
• The EUR decline Friday breached technical support from the Tuesday/Wednesday lows ~1.1790. Losses could extend as far as the July 26 low of 1.1613 if further profit-taking on EUR longs sets in and Monday’s low of 1.1723 is breached
• USD/JPY retreated after rising to a fresh high at 111.05 as the dollar rebounded from Thursday’s 109.86 low seen after the grand jury report. USD has enjoyed steady demand on dips below 110.00 this week, traders in Asia said. The U.S. data was “a Goldilocks-y number,” said Neil Jones, head of institutional FX sales at Mizuho, which “may help to keep dollar-yen gently bid.” The USD easily overcame offers at 110.30 after the jobs report before stalling near technical resistance from Wednesday’s 110.98 peak. Further resistance may be at the 100-DMA at 111.40
• GBP/USD fell to 1.3024, its lowest in more than a week. The pound extended a decline that began Thursday after the Bank of England left rates and policies on hold, the drop coming after GBP had risen as high as 1.3267. Reduced positioning in GBP may give the pound further to run as USD gains, one trader said

To contact the reporters on this story: Dennis Pettit in New York at dpettit5@bloomberg.net, Alexandria Arnold in Seattle at abaca3@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Vivien Lou Chen