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Will the Markets Go on Vacation This Week?

PART:
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Part 3
Will the Markets Go on Vacation This Week? PART 3 OF 8

The US Dollar Seeks Another Rebound This Week

US dollar rebounds after jobs data

The US Dollar Index (UUP) managed to claw back some of its losses after a stronger-than-expected US non-farm payroll report on August 4, 2017. The US Dollar Index closed at 93.42 in the previous week compared to 93.11 in the week before. The US dollar’s rebound cannot be attributed only to US economic data. 

Other major currencies like the euro, pound, and the yen have appreciated considerably against the US dollar in the last seven months. Traders could be finding reasons to exit, as these currencies’ valuations are stretched.

The US Dollar Seeks Another Rebound This Week

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Speculator positions on the US dollar are bearish for a third week

According to the latest Commitment of Traders (or COT) report, released on August 4 by the Chicago Futures Trading Commission (or CFTC), large speculators and traders have added to their bearish positions on the US dollar for a sixth straight week. 

According to Reuters, the net US dollar (USDU) position increased to about -$5.3 billion compared to about -$3.9 billion in the previous week. This amount is a combination of the US dollar’s contracts against the combined contracts of the euro (FXE), the British pound (FXB), the Japanese yen (FXY), the Australian dollar (FXA), the Canadian dollar (FXC), and the Swiss franc.

Could the US dollar surge higher?

Next week should be crucial for currency markets from a technical point of view. There are no major economic data releases except for the US inflation report on Friday, August 11. 

We’ll have to watch how the pullback in the euro and the pound could persist if these currencies continue to slide against the US dollar next week. We may be able to expect further appreciation in the US dollar index. US inflation is expected to rise 1.7%, and any positive surprise could propel the US dollar higher by the end of next week.

In the next part of this series, we’ll analyze how the bond market reacted to last week’s US employment data.

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