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Investors look more positively on the country as political uncertainty vanishes, improving BRL's prospects.

We update our BRL view, expecting USD/BRL to fall to 3.05 in 1M (3.20 previously), 3.00 in 3M (3.40 previously), 3.00 in 6M (3.60 previously) and 2.90 in 12M (3.80 previously).

A major downside risk for our new USD/BRL forecasts is a promptly improving economy on higher commodity prices, while a more hawkish Fed is an upside risk.

Assessment and outlook

The positive news last week has improved sentiment towards the Brazilian economy. President Michel Temer has escaped the fate of his predecessor Dilma Rousseff. With 263 votes against 227, the lower house of parliament quashed the motion to put Temer on trial. Therefore, the pressure arising from the corruption scandal surrounding Temer appears to have eased, giving him more room for economic reforms, one of which is essential – the pension overhaul to improve the country's fiscal stability.

Vanishing political noise has pushed the BRL up 4% versus the US dollar within the past 30 days and improved sentiment should see portfolio inflows return. Due to the abrupt relief in political risk, we expect a near-term rally in the BRL and accordingly make sharp revisions to our short-term USD/BRL forecasts: 3.05 in 1M (3.20 previously) and 3.00 in 3M (3.40 previously). Yet, a stronger USD due to a more hawkish Fed is a clear upside risk for our short-term USD/BRL forecast.

As the current account remains in deficit (albeit shrinking) and we expect the central bank to cut rates by 200bp in H2 17, we expect the BRL rally to come to a halt in the medium term, finding equilibrium in the long term at 3.00 in 6M (3.60 previously) and 2.90 in 12M (3.80 previously).

EUR/USD

The American dollar saw a dramatic change of course on Friday, following the release of the US Nonfarm Payroll report, resulting in the EUR/USD pair trimming all of its weekly gains to end it flat around 1.1773. According to official figures, the US added 209,000 new jobs in July, beating expectations of around 180K, while June figure was revised higher by 2,000. The unemployment rate fell to 4.3% as expected, while average hourly earnings were up 2.5% on an annualized basis matching June's figure and above the expected 2.4%. Average hourly earnings rose by 0.3% when compared to the previous month, matching market's forecast.

Overall positive and supportive of Fed's tightening policy, the report was not as good as market's reaction suggests, particularly as wages' growth remains shallow, insufficient to push inflation higher. The data helped investors taking profits out of the table, as the EUR/USD pair rallied for four consecutive weeks reaching a fresh 2017 high of 1.1909. The corrective movement could extend, yet it still too early to describe the greenback as "bullish," as unless inflation clearly picks up, investors will be unwilling to buy the dollar, also dented by political jitters. The other factor of the equation is the latest EUR self-strength, backed by solid growth data and speculation that the ECB will make an announcement on tapering as soon as next September.

From a technical point of view, readings in the daily chart support a corrective movement, as technical indicators have turned sharply lower from extreme overbought levels, but remain far above their mid-lines, whilst the price remains above all of its moving averages that maintain their upward slopes. The 20 DMA is the closest, currently around 1.1660. In the 4 hours chart, the price broke below its 20 SMA, which is not flat in the 1.1860 region, while technical indicators pared their declines, but remain near, oversold readings. The key support for this Monday is 1.1715, 2015 high and the level to break to confirm a steeper decline over the next few sessions.

Support levels: 1.1750 1.1715 1.1680

Resistance levels: 1.1785 1.1820 1.1860

USD/JPY

The USD/JPY pair ended the week at 110.68, barely 15 pips above Monday's opening, and after extending its recent decline down to 109.84, its lowest since mid June. On Friday, the pair surged up to 111.04, as an upbeat US employment report helped the greenback correcting higher after being under pressure for three consecutive weeks, with speculative interest using employment data as an excuse to take profits out before deciding what's next. The Japanese yen appreciated earlier in the week, as bond yields trended lower, holding near their yearly lows. The strong jobs' reported helped them bounce, but not enough to close the week in positive territory, therefore limiting yen´s losses. At the beginning of the week, Japan will release its preliminary June Coincident and Leading economic indexes, key measures of the current and future economic activity. From a technical perspective, the daily chart shows that the price settled below its 100 and 200 SMAs, whilst indicators bounced from oversold readings, but remain well into negative territory, limiting chances of further recoveries. Additionally, the 4 hours chart shows that the pair closed below the 38.2% retracement of its latest bearish run between 112.18 and the mentioned low at 110.70, retracing from the 50% retracement of the same decline around 111.05. In this last time frame, the 100 SMA maintains a strong bearish slope well above the level, while technical indicators hover around their mid-lines unable to provide directional clues.

Support levels: 110.35 109.85 109.50

Resistance levels: 110.70 111.05 111.40

GBP/USD

The British Pound was among the worst performers last week, taking a double hit, one from the BOE and the other by the better-than-expected US jobs report. The GBP/USD pair plunged for a second consecutive day to end at 1.3040, its lowest in almost two weeks. The Bank of England decided last Thursday to maintain its monetary policy unchanged, but policy makers estimate that they would need to raise rates two times over the next three years, up from previous forecast of one, but downgraded their growth estimates for this year and the next. The MPC also warned about the uncertainty surrounding Brexit, saying that it could increase inflationary pressures. However, the market took the statement as dovish, particularly as recent data showing sluggish grown and weak wage growth resulted in six out of the eight MPC members voting to keep their policy unchanged. The pair is close to a bearish breakout according to the daily chart, as it settled below its 20 DMA, while technical indicators turned south and are about to enter negative territory. The key is the 1.3000 threshold as a break below it will likely dent further investors' sentiment. In the 4 hours chart, the 20 SMA turned sharply lower above the current level, while technical indicators ended the week flat in oversold territory, with no signs of changing course. The 200 EMA in this last time frame stands around 1.3000, reinforcing the psychological support level.

Support levels: 1.3000 1.2965 1.2920

Resistance levels: 1.3070 1.3110 1.3150

GOLD

Gold prices plunged on Friday to close the week in the red, with spot settling at $1,258.49 a troy ounce, on a resurging dollar following the release of the US monthly employment report that supports Fed's case of normalization. The commodity retreated from a seven-week high of 1,274.04, and while the slide has been quite impressive on Friday, a bearish continuation is not yet clear, moreover considering that other US economic indicators released through the week signaled sluggish economic conditions at the beginning of the third quarter. Technically, the daily chart shows that the price held above its 100 DMA, now the immediate support around 1.254.10, while the 20 DMA maintains its bullish slope, not far below the largest. Indicators in the mentioned chart have turned sharply lower from overbought levels, but remain within positive territory, indicating that the downward move may extend on a break below the mentioned dynamic support. In the 4 hours chart, and for the short term, the risk turned towards the downside, as the price is currently developing below a strongly bearish 20 SMA, while the Momentum indicator heads south within negative territory and at fresh 1-month low, while the RSI indicator consolidates around 38.

Support levels: 1,254.10 1,245.20 1,235.20

Resistance levels: 1,265.30 1,274.05 1,283.30

WTI CRUDE OIL

West Texas Intermediate crude futures closed the week marginally lower at $49.51 a barrel after failing to regain the 50.00 level earlier on the week .The commodity came under pressure earlier on the week on news that African OPEC's members rose their oil output during July, while the American Petroleum Institute reported an inventory build of 1.779 million barrels, well above an almost 3 million decline. The EIA report showed a smaller-than-expected draw of 1.5 million barrels. Friday's bounce was backed by the Baker Hughes report, as the number of active rigs drilling oil in the US fell by one to 765. In the daily chart, the upside is being contained by a horizontal 200 DMA, currently around 50.00, while the Momentum indicator retreated from oversold readings and heads lower within positive territory, but the RSI remains firm around 61, whist the 20 DMA advances above the 100 DMA below the current price, limiting the downside potential. In the 4 hours chart, the technical outlook is modestly bullish, as the price settled above a flat 20 SMA while the RSI indicator consolidates around 54, and the Momentum aims higher above its 100 level.

Support levels: 48.80 48.30 47.70

Resistance levels: 50.20 50.85 51.40

DJIA

Wall Street closed in the green, with the Dow Jones Industrial Average posting its eighth consecutive record close, up 66 points to 22,092.81. The Nasdaq Composite gained 0.18% or 11 points to 6,351.56, while the S&P added 4 points to close at 2,476.83. Indexes were boosted by the solid employment report released on Friday, and despite escalating political tensions related to Russia's involvement in the US election. Financial-related equities led the way higher within the Dow, following their European counterparts, with Goldman Sachs up 2.59% being the best performer, followed by Home Depot that added 1.30% and JP Morgan that closed 1.25% higher. Walt Disney was the worst performer, down 1.31%, followed by Merck that shed 0.66%. From a technical point of view, the upside remains favored in the DJIA, as the index remains well above bullish moving averages, whilst technical indicators have barely decelerated their advance, still holding within extreme overbought territory. In the 4 hours chart, a bullish 20 SMA keeps providing short term support, currently at 22,023, the Momentum indicator heads south within positive territory, while the RSI indicator remains flat in overbought territory, reflecting the latest consolidation rather than suggesting upward exhaustion.

Support levels: 22,023 21,982 21,940

Resistance levels: 22,102 22,145 22,190

FTSE100

The FTSE 100 closed the week higher at 7,511.71, strongly up for a second consecutive day. The benchmark added 37 points on Friday as the Pound kept easing, although soften within mining and home builders' equities limited the advance. Barratt Developments was the worst performer, down 4.69%, followed by Persimmon that shed 3.98%. Randgold Resources led the way lower from commodity-linked equities shedding 1.87%. Leading the way higher was Merlin Entertainments up 5.75%, followed by Mediclinic that added 4.06%. The index settled at its highest for the week, and the daily chart supports additional gains ahead, as the index has finally detached from its 20 and 100 DMAs, with the shortest gaining upward traction, whilst technical indicators head north well above their mid-lines. In the 4 hours chart, technical indicators eased modestly within overbought territory, but the index remains well above all of its moving averages, in line with further gains ahead.

Support levels: 7,487 7,440 7,392

Resistance levels: 7,540 7,572 7,600

DAX

A weakening EUR underpinned European equities which closed firmly higher on the last trading day of the week. The German DAX added 114 points or 1.18%, to end at 12,297.70, boosted by an advance in financial and industrial-related equities. Macroeconomic news coming from Germany showed that in June, factory orders rose by more than expected, up by 1.0% in the month and by 5.1% from a year earlier, largely surpassing market's expectations. Within the DAX, only two members closed lower, Siemens that shed 0.71% and Merck that lost 0.47%. Leading advancers was E.ON, up 3.95%, followed by Commerzbank which added 3.53%. The index closed near its highest for the week, but in the daily chart, the upward potential remains limited, given that it stalled below a bearish 20 DMA that extended its slide below the 100 DMA, while technical indicators have managed to bounce from oversold levels, but remain within negative territory. In the 4 hours chart, the index settled above a modestly bullish 20 SMA, while technical indicators lost their upward strength and turned lower after entering positive territory, in line with the longer term perspective.

Support levels: 12,255 12,210 12,174

Resistance levels: 12,323 12,381 12,427

Dollar Jumped From 15-mth Low On U.S. Jobs Report. The Dollar holds firm on Monday after a rally based on a strong U.S. jobs data that lifted it off 15-month lows. The dollar index climbed 0.75 percent on Friday. The data released on Friday showed that nonfarm payrolls increased by a bigger-than-forecast 209,000 jobs last month, while average hourly earnings increased 0.3 percent. Strong jobs data helped the dollar by giving a hope of the December interest rate increase by the Federal Reserve, meanwhile markets are still looking for the further evidence of robust fundamentals in order to firm up the dollar upturn.

This is going to be a crucial week for the U.S. currency. U.S PPI numbers for July will be released on Thursday and the CPI figures are due on Friday, they both may have to be better than expected to douse inflation concerns. Only then we will see if the dollar reached a real turning point.

Euro Consolidated After 0.8 Percent Loss On Friday. After the strong U.S. employment data released on Friday that pushed Euro down from its 2-1/2-year high of $1.1910 and made it losing over 100 pips, the pair EUR/USD went into a consolidation phase and is now trading at 1.1788.

Aussie Lost 0.7 Percent On Friday. The Australian dollar is recovering in a minor correction at $0.7931 after losing about 0.7 percent last week against the surged U.S. dollar.

GBP Is Flat After Sharp Slide At The End Of Last Week. Friday’s dollar surge deepened losses for sterling, which was already on the back foot after the Bank of England kept rates unchanged on Thursday and delivered a dovish message. It has slid sharply from a 13-month peak of $1.3267 set earlier last week.

CAD Notched Its Weakest Close In More Than 2-wks. After a strong U.S. jobs data and increase in Canada’s trade deficit on Friday, the Canadian dollar had its weakest close in more than two weeks against U.S. dollar. The Loonie fell 1.7 percent against the greenback last week, but is still up nearly 9 percent since early May.

Only two levels can tell you which way to go

For the dollar index, the question is if we have a bottom in place after that sturdy reading of the US NFP. We know that we are way too oversold on the price curve and the price is bound to correct itself. To clear the noise and have a more logical discussion, we have used the candle session study and combined it with the simple price study.

A candle session study is a useful tool in determining the potential reversal which is established by comparing up or down candles to see where the potential session highs or lows are. The potential reversal tends to occur at the count of 8, 10 or 13. We can already see that the downtrend exhausted at the 10th count and now we have our first count which is giving us a signal that a new trend is emerging.

However, in order for us to have a clear indication of this, the two important levels matter a lot. The break of the 93.77 level would confirm that the trend is moving to the upside and the price would continue to correct itself. The break of 92.69 would imply there is still more steam left in this downtrend and we are still going to move lower.

Fed Won't Change Their Stance
How Dollar Can Find Life
Factors Not Factored
Looking Ahead
How To Trade Gold After US NFP

The US NFP data was released and in the initial reaction the dollar moved higher, Treasuries fell and the equity markets loved the news. The US non-farm employment number came ahead of the expectations with the reading of 209K while the forecast was for 182K. At 180K the market forecast for July's NFP is in line with the six-month (180k) and 12-month (187k) moving averages, with variations anticipated to fall within the 125K-220K range. Hiring gains have been slow but steady in the past months. The unemployment rate dropped to 4.3 percent from previous reading of 4.4 percent.

Statistics show a tendency for July payrolls to be slightly underrated, leading to a combined miss of about 12K in the past 10 years. The print for July 2016 was a miss as high as 75K. The end of the school year causes a substantial loss of jobs, which in its turn means that seasonal adjustments for July tend to have a negative impact. This normally equals a 1.3 million jobs lost, which is less than the most impactful seasonal adjustment of the year taking place in January.

Fed Won't Change Their Stance

Overall you can say that there was nothing in this data which was extraordinary. The Fed chairwoman does not have any reason to pop any Champaign bottle yet. I think the data gives her no reason to change her current stance on the monetary policy and hence the equity market is in love with today's news- at least for now.

How Dollar Can Find Life

For the dollar index to stem its losses, we need the wage growth to continue to tick higher. As long as wages remain at the current levels, I wouldn't be surprised if the estimated increase for 2H GDP growth (2.6%) relative to 1H (1.9%) led to more hirings in the near term. That would help the major denominator for the dollar, the GDP growth, to improve.

Factors Not Factored

The question if the equity market is overvalued or overbought would require a separate article to explain the logic but in summary as long as the headline economic numbers do not upset the apple cart, I think there is more room to run for this equity market.

Pretty much all markets especially the forex and equity markets are shrugging off any concerns about Donald Trump's policy agenda or paying any attention to the Special counsel Robert Muller's probe into Russia's interfering in the 2016 election. These risks are not even baked in the gold price either.

Looking Ahead

Today's number has shown that halfway through 2017 the economy is in a stable condition but not enough to produce the kind of growth which we need. Going forward, traders will be focusing on two key data – the average hourly earnings and the household income creation. If we are to see a rise in GDP in 2H we need the increase of household income to materialize faster. The data however is currently pointing to a different direction. Based on the 2Q GDP results it is consumers who made the largest contribution to growth. Therefore, we expect the wage and salary gains to remain a key indicator for economic growth in the second half of 2017.

How To Trade Gold After US NFP

Investors had one focus today which is what will be the impact of the US non-farm payroll data on the Fed interest rate hike. When it comes to the US NFP number, only an extreme reading on either side would have impacted the Fed's stance. So far, the odds are low that we are going to see another rate hike this year and this has stimulated the rally for the gold price. We are up nearly 10.6% so far this year and this is despite the fact that we have seen a few interest rate hikes this year. What really matters is the economic data and if it confirms that the economy is not facing any major threat, we think that the Fed would resume their gradual interest rate hike.

Technical Analysis

The uptrend is strong as the price is trading above the 100 and 200 day moving average – a clear signal for a strong uptrend. Moreover, we are consolidating in a sideway pattern. However, something which we need to watch out for is that we have formed a lower low and perhaps in a process of forming a lower high (as shown on the chart). A break below the 200-day moving average would signal that the game is about to change and the break of the upward trend line would validate that we may have another lower low.

Following the massive plunge mid-Friday, EUR/USD breached two patterns simultaneously, namely, an ascending wedge and a longer-term channel up. The pair halted near the 200-hour SMA circa 1.1770— a level which has managed to provide support this morning, as well. It seems that the rate is starting to recover losses, thus approaching a resistance cluster formed by the 55– and 100-hour SMAs. In general, the pair is expected to make a retracement from the bottom channel boundary in the 1.1840/60 area that should be realised within the upcoming 24 hours. Technical indicators suggest that the Euro may remain relatively stable against the Greenback, thus entering a consolidation period between the aforementioned resistance cluster and the 200-hour SMA.

The GBP/USD currency pair started Friday's session rather calmly, being supported by the 200-hour SMA near 1.32. This lack of movement, however, changed at 1230GMT when solid fundamentals from the US altered market sentiment in favour of Dollar bulls. Thus, the Pound ended the previous trading week slightly above the 1.3020 mark and remained in the same range this morning, as well. The aforementioned plunge set the pair in the strongly bearish territory; thus, it is expected that the Pound tries to recover some losses and approach the monthly PP or a resistance cluster formed by the 55– and 200-hour SMAs circa 1.3150. Meanwhile, the lack of market shakers today may likewise keep the pair relatively still, thus resulting in the Pound fluctuating around the 20-hour SMA.

Friday morning was characterised by a lack of distinctive movement for the USD/JPY pair, as the rate remained in a relatively small range. Nevertheless, strong US employment data mid-session put an upward pressure on the Dollar that resulted in a 65-pip jump against the Yen. The rate halted at the 200-hour SMA and remained stranded below the given line on Monday morning, as well. Technical indicators suggest that the rate should trade lower within the next 24 hours. This prediction is in line with a channel down pattern which has bounded the US Dollar since early July. No market shakers are expected in this session; thus, the most likely trading range for the given pair is between the 200-, 55– and 100-hour SMAs in the 110.80/40 area.

XAU/USD was not an exception for the strong appreciation of the US Dollar in the wake of solid employment data. As a result, the yellow metal fell below the 200-hour SMA into the bearish territory. Subsequently, the pair entered a consolidation period on Monday morning, thus fluctuating near the 1,257.80 mark. The given move has pushed the rate outside a minor channel down which was formed as a wave south in a senior ascending channel. Technical indicators signal to a potential near-term recovery that should push Gold back in the junior channel. Likewise, it is likely that it edges as high as the weekly PP at 1,262.80 and stops near the 200– and 55-hour SMAs. From the downside, the pair is supported by the weekly S1 at 1,251.28.

Daily Pivots: (S1) 143.92; (P) 144.57; (R1) 144.92; More

Intraday bias in GBP/JPY remains neutral with focus on 114.01 support. Break will turn bias to the downside for trend line support (now at 141.78). Further break there will target 135.58/138.65 support zone. However, above 146.77 will turn bias to the upside. Further break of 147.76/148.42 key resistance zone will resume larger rebound from 122.36. However, above 146.77 will turn bias to the upside. Further break of 147.76/148.42 key resistance zone will resume larger rebound from 122.36.

In the bigger picture, rise from medium term bottom at 122.36 is expected to continue to 38.2% retracement of 196.85 to 122.36 at 150.43. Decisive break there will carry long term bullish implications and pave the way to 61.8% retracement at 167.78. In case the sideway pattern from 148.42 extends, we'd be looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside.