The Dollar

USD Edges Higher Following Jobs
by Korman Tam
8/1/2008 2:19:00 PM
The US economic reports released in the Friday session offered a mixed bag of data, providing traders with conflicting signals and whipsawing the major currency pairs around. The dollar initially rallied sharply upon the release of the July non-farm payrolls reading, which bested consensus estimates for deterioration to -75k from -62k in June, instead revealing an improved jobs loss of 51k. The payrolls figure bolstered the greenback to its highest level since late June against the euro to test its one-year trendline support at 1.5518. However, the jobs report was not entirely rosy given the larger than expected reading in the July unemployment rate - which edged up to its highest level in 4-years at 5.7%, higher than calls for an increase to 5.6% from 5.5% in May. Meanwhile, manufacturing ISM in July beat estimates for a contraction, holding firm at the key 50-level and drifting marginally from the June reading of 50.2.

The greenback retreated sharply away from a year-long ascending support line against the euro near the 1.5520-region amid rebounds in crude oil and spot gold. Moreover, the dollar touched key levels against the Loonie and Swissie around the 1.03 and 1.05 handles, respectively, but failed to garner enough momentum to breach the aforementioned resistance levels. The current outlook continues to favor a stronger dollar stemming from the rapid deterioration in economic fundamentals across the Atlantic and tempered expectations for monetary policy tightening from both the ECB and BoE. However, failure to breach those key levels against the euro, Canadian dollar and Swiss franc will likely result in further consolidation in the major currencies, with movements largely dictated by price action in both crude oil and spot gold.