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Despite better than expected retail sales and a little firmer consumer prices, the Canadian dollar fell before the weekend. The 5.5% slide in the front month oil futures contract to its lowest since May didn't do the Loonie any favors. The US dollar rose to the upper end of its three-month trading range near CAD1.3180, which also corresponds to a 38.2%  of the US dollar's fall since late-January. The 200-day moving average is found near CAD1.3315 and the 50% retracement of the greenback's early drop is found near CAD1.3400. Initial dollar support is seen near CAD1.3050.

With the latest decline, the September crude oil futures contract has retraced half of its advance form the $34.67 low in late-January to $52.73 high in June. It is found near $43.70, within a nickel of the pre-weekend low. The contract closed below its 200-day moving average (~$44.75) for the first time since May 9.  Technical factors suggest the down move is not exhausted. The 61.8% retracement is found near $41.60. The continued increase in the US oil rig count coupled with crude inventories in excess of 100 mln barrels above the seasonal average warns of the unaddressed surplus as the US peak driving season is nearly over.

US 10-year yields were unchanged last week, but they did reached their highest level since the UK referendum near 1.62%. Recall yields had plummeted to 1.31% in the immediate response to the referendum. Given the string of US upside data surprises, it seems increasingly difficult to read into the low long-term US yields as a signal of a looming recession. In particular, as more bonds break through the zero threshold, the more attractive US Treasuries appear. The 10-year yield looks like it put in a near-term peak and is poised to pull back into a 1.48%-1.53% band looks likely. This translates a move toward 132-19 to 133-00 basis the September contract.

The S&P 500 alternated advancing sessions with declining sessions, but still managed to climb higher in this saw tooth fashion. Last week's little more than 0.5% gain sufficed to extend the streak into the fourth successive week. This is the longest streak since the Feb-March rally. There has been practically no pullback since the July 6 low near 2074.The technical indicators are stretched and the momentum seems to be flagging but there is very little on which top pickers can count. The weekly charts and technical studies suggest more room to the upside.

Marc Chandler
Global head of currency strategy at BBH
Brown Brothers Harriman

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