Global Themes

An action-packed week started with the U.S. dollar on steady ground after it flirted with multiweek lows in overnight trade. The dollar finished last week favoring its back foot after mixed news on America’s job market catalyzed some profit-taking. America netted more than 200,000 jobs for a second straight month, nudging unemployment down a notch to 4.7 percent. But wages rose in underwhelming fashion. The data cemented expectations of a U.S. interest rate hike this week but stopped short of suggesting a faster pace of rate hikes in the months ahead. The Federal Reserve has telegraphed an interest rate hike as soon as its midweek announcement. What could matter most for the dollar is how many times the U.S. central bank expects to raise rates over coming months. Also this week: Dutch elections, central bank decisions and lots of big ticket data.

USD

The dollar steadied after flirting with two-week lows against a currency basket and its weakest in a month against the euro. The ‘buy the rumor, sell the fact’ of a solid U.S. jobs report left the dollar vulnerable to late week profit-taking. The Fed has telegraphed a U.S. rate hike on Wednesday which could also leave the buck ripe for another ‘buy the rumor, sell the fact’ selloff. The Fed Wednesday will also issue fresh forecasts for the economy and interest rates. The Fed in December penciled in up to three rate hikes for this year, if the recovery can stay on track. No change to the rate outlook would weigh on the dollar, while any increase to four rate hikes this year could ignite a dollar rally.

EUR

The euro steadied after rallying to one-month highs overnight. A nascent brightening in euro zone fundamentals helped raise the roof for the euro, with resistance around 1.0750, suggesting the European Central Bank may be less inclined about beefing up stimulus beyond its current settings. European politics could inject renewed uncertainty into the euro with the Netherlands going to the polls Wednesday to choose the nation’s next prime minister. The euro would be vulnerable in the event of a win for an anti-establish candidate like euro-skeptic Geert Wilders of the Freedom Party. The euro will take its fundamental cues this week from Tuesday data on German investor confidence and euro zone industrial production.

CAD

The loonie treaded water above 2017 lows thanks to another resilient month for Canada’s job market. Canada’s netting of more than 15,000 jobs exceeded forecasts and drove unemployment two ticks lower to 6.6 percent, a multiyear low. Evidence of a better performing Canadian economy suggest any divergence in monetary policy with the U.S. might come in smaller increments, boding better for the lower-yielding loonie. USDCAD will take its main cues this week from the Fed’s policy decision on Wednesday at 2 p.m. ET.

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