The US dollar and equity markets enjoyed a fairly positive week last week, largely as a result of a surprisingly good US July jobs report, as well as the Bank of England embarking on a new easing program.

At the beginning of last week there was some concern that after a positive July, August would see some profit taking, and initially that did turn out to be the case, however we saw a sharp turnaround at the end of the week as US markets saw new record highs on the S&P500, the FTSE250 wiped out all its post Brexit losses, and hit its best levels this year, while the FTSE100 posted 13 month highs.

Even the German DAX managed to crawl back above its pre Brexit highs, as the euro slipped lower under the weight of an advancing US dollar.

Despite an initial poor US Q2 GDP number at the end of July it would appear that as far as the labour market is concerned jobs growth appears to have recovered fairly strong after the 24k May blip. It does remain puzzling as to why May’s numbers were so poor, however June and July appear to have more than made up for that.

The big question now for Federal Reserve officials comes down to whether these numbers make it likely that we will get a move on interest rates at next month’s FOMC rate meeting.

Certainly the odds have gone up that we could get a move which suggests that this month’s Jackson Hole Symposium on August 26th is likely to be a key bellwether for the Fed’s appetite for a move higher, or whether the lack of inflation could stay there hand. Fed Chief Janet Yellen is due to speak there so she could, like her predecessor Ben Bernanke was so fond of doing use it as a forum to signal any potential moves on policy next month.

It’s also set to be an important wee for the US consumer with June retail sales, as well as some important earnings announcements from US retailers Macy’s, Kohls, Nordstrom and Michael Kors.

Before then we have the not insignificant matter of the latest data from China starting with the July trade data. This has been disappointing in recent months, with imports and exports showing weakness on both sides of the equation.

Later in the week we get inflation data as well as July retail sales and industrial production data.

Recent services PMI’s have shown some improvement which has given rise to some optimism that we could get a decent imports number, however that optimism appears misplaced as imports declined 10.5%, an even worse number than June’s 8.4% decline. This is not a particularly good omen for the retail sales numbers later this week. While exports declined in US dollar terms more than expected, in Chinese currency terms came in better than expected which suggests that while global demand remains weak, the weaker currency is helping at the margins.

Last week saw another poor performance from the pound after the Bank of England cut rates anew for the first time in 7 years to 0.25%. Bank of England governor Mark Carney pushed back against accusations of being indifferent to savers and pension funds, by saying that the measures announced last week could save up to 250,000 jobs, over the next few years, warning of a material slowdown on the back of June’s Brexit vote, pointing to evidence from a number of worrying employment, business and confidence surveys.

Tomorrow we’ll get the first estimate from NIESR on July GDP, which could well support the arguments about the shock to the UK economy.

Given that June came in at 0.6%, there remains a concern that the Bank of England is behaving rather hastily, and given its track record on forecasting inflation and GDP, over the past few years I would be hesitant about putting a lot of faith in its unemployment forecasts either.

After all Mark Carney stated in 2013 he would only look at raising interest rates when unemployment dropped below 7%, estimating that would happen in 2016, only for it to fall far quicker than the Bank estimated, forcing him into a rather embarrassing U-turn.

EURUSD – last week’s failure to overcome the 1.1250 area has seen the euro fall back and fall below the 1.1100 area, but we have found some support around the 1.1040 level. We also have support at 1.0950. We need a move beyond 1.1250 to open up a retest of the June highs at 1.1400.

GBPUSD – continues to come under pressure undermining the positive scenario in the process by falling below the three week lows at 1.3060 last week, though we did manage to close back above it. The risk now is we could well head back towards the 1.2800 lows, but we need to push below the lows last week at 1.3020 to do so, or risk a pullback towards 1.3200.

EURGBP – continues to lack the momentum to push above the 0.8500 level, towards 0.8600. Until we do we remain vulnerable to a pull back to the lows last week at 0.8360.

USDJPY – the failure to push below the 100.60 level has prompted a rebound through 101.65, but we need to push beyond the 103.50 area to stabilise. The risk remains for a move back towards the lows at 98.90 on a break below the July lows at 99.99.

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