Why the beat-up dollar is poised for a ‘rip-your-face-off rally’

Mueller? Mueller? That is one refrain today, in addition to the usual song and dance about “jobs, jobs, jobs” that comes with today’s big employment report.

With that background music, the 22K-topping Dow is heading toward a weekly win, but the almighty dollar is on track for a weekly loss.

And FX strategists are blaming the buck’s woes in part on the news that Special Counsel Robert Mueller has impaneled a grand jury to investigate Russia’s interference in last year’s presidential election.

“As long as this investigation continues,” says Tempus currency strategist Juan Perez, “and the White House continues to work on everything except the economic agenda, it’s going to weigh heavily on the dollar.”

Except not everyone is a Negative Nelly on the buck. ICE’s dollar index DXY, +0.02% could be setting up for “a rip-your-face-off rally,” says OfTwoMinds.com financial blogger Charles Hugh Smith for our call of the day.

That gauge for the greenback is down more than 9% for the year, and Smith says there are plenty of reasons given for the sizable fall against the euro and other rival currencies. Analysts note “European growth is better than expected, Trump’s presidency is going nowhere, the Federal Reserve won’t be raising rates, and so on,” he writes. Yet he’s not throwing in the towel.

“The only shred of bullish hope is the decline has finally reached key support/resistance at the 200-week moving average (MA) around 92, a level that also happens to be support going back 2+ years,” Smith says. He offers the chart below, which shows that 200-week line on the right in red.

“A defense of this level would offer some initial stirrings of support for an eventual reversal,” he adds. But the author of “Why Our Status Quo Failed” also warns: “A definitive plunge below this support would suggest the freefall has more to go.”

He’s hardly alone in bracing for a rebound by the dollar. Kimble Charting’s Chris Kimble notes the U.S. currency appears oversold, while Miller Tabak’s Matt Maley goes further, saying it’s “over-hated.” Newsletter writer John Derrick says the one-way trade is “getting to an extreme” and likely to reverse.

Read more: What the plunging dollar really means for stocks

And see: Stocks could be getting a powerful tailwind from the weaker dollar

Key market gauges

Futures for the Dow industrials YMU7, +0.22%  , S&P 500 ESU7, +0.10%  and Nasdaq-100 NQU7, +0.13%  are slightly higher. The Dow DJIA, +0.04%  is on track for a weekly gain of about 1%, while the S&P SPX, -0.22% is roughly flat, and the Nasdaq Composite COMP, -0.35% is down modestly.

Europe SXXP, +0.15% and Asia have been mixed bags. Oil  CLU7, -0.35%  is adding to its weekly loss, while gold GCQ7, +0.06%  is also lower.

See the Market Snapshot column for the latest action.

The economy

The nonfarm-payrolls report said the U.S. added XXX jobs in July, while economists expected 180,000 jobs. The unemployment rate came in at Y% vs. forecasts for 4.3%.

See: Jobs report likely to show plenty of new jobs but no big wage gains

And check out: MarketWatch’s Economic Calendar.

The chart

Here is a chart illustrating a hot topic in recent months — how the stock market has been really chill.

“You can see how the number of big moves (over 2%, up or down) has really dropped off,” writes Crossing Wall Street’s Eddy Elfenbein, as he shares the chart.

The buzz

ADP ADP, +2.00%  says activist investor Bill Ackman’s Pershing Square Capital is trying to take control of it.

The passion for tech stocks is fading, according to Bank of America Merrill Lynch’s latest Flow Show report.

GoPro GPRO, +16.95%  and Weight Watchers WTW, +16.08% look set for big up days after their upbeat quarterly reports late yesterday.

Cigna CI, +1.90%  posted better-than-expected earnings before the open, and Warren Buffett’s Berkshire Hathaway BRK.A, +0.61% BRK.B, +0.64% is due to report after the close.

A speech on China’s trade practices that President Trump was slated to give today has been postponed, as he is expected to order a probe of Beijing’s policies.

“Passive investing is in danger of devouring capitalism,” says billionaire investor Paul Singer.

The stat

2.42% — That is the average yield in the euro junk-bond market, representing an all-time low, says Wolf Street’s Wolf Richter.

“The humans and algorithms that make the buying decisions have gone nuts,” he howls.

“Often enough, the issuers are junk-rated American companies with European subsidiaries — in which case these bonds are called ‘reverse Yankees,’” Richter adds.

The quote
Mitch Williams via Reuters
Flames shoot up the sides of the Torch Tower.

“We were sleeping, and we woke up to the fire alarm and people screaming. We ran down the stairs, and it took us about 10 minutes to reach from the 50th floor.” — A resident of Dubai’s Torch Tower talks to Reuters about the skyscraper catching fire again.

This fire follows a June blaze at a London high-rise that killed at least 80 people.

Random reads

This dad has a Twitch record for views after his 22-month-old daughter scared him.

Summertime miracle: Scientists have an organic way to make ice cream not melt.

Aziz Ansari quit the internet: “Just sit and be in your own head.”

Sun Microsystems co-founder Bill Joy’s battery is a challenge to lithium-ion.

Grilling with charcoal is banned around Seattle amid smoke from wildfires.

The Economist invites you to kick back this weekend and read about nuclear war:

View image on Twitter

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http://www.marketwatch.com/story/why-the-beat-up-dollar-is-poised-for-a-rip-your-face-off-rally-2017-08-04

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