Global Themes

Oil started the week with a slip, weighing on commodity currencies like Canada's, and lending support to safe havens or de facto safe havens like the yen and euro. America's dollar was somewhere in between, up against the loonie, but lower against a trade-weighted basket of currencies. Last week concluded in fairly upbeat fashion as both stocks and oil had finished firmly. But the lack of fundamental improvement in markets left recent gains for risky assets untenable. After the European Central Bank last week vowed to reconsider stronger stimulus next time around, the Federal Reserve will be in focus this week, carrying critical implications for the dollar, when it announces its first interest rate decision of the year on Wednesday. 

EUR

The euro firmed above multiweek lows as traders reached for their skittish market playbook with global stocks and oil generally in the red. When the market mood darkens, the euro tends to outperform as nervous players gravitate toward lower-yielding currencies that are deemed less risky. Nevertheless, a fall today in German business optimism to nearly one-year lows strengthened the case for imminent action from the ECB, boding shallow and short-lived gains for the euro.

CAD

Gains for the loonie faded as oil slid anew, down nearly 3 percent to below $32. Canada's currency held comfortably above recent 13-year lows, a move sparked by the Bank of Canada's pass last week on cutting interest rates. Though weaker, oil above $30 from recent 12-year lows below $27 helped ease bearish pressure on the Canadian currency.

USD

The dollar started a big week for the Fed and the world's biggest economy on a mostly subdued footing. The dollar would be at risk of extending its generally subpar start to the year if the Fed should change its tune in any way to acknowledge threats to growth and inflation from plummeting oil prices and global weakness. Any words of caution from the Fed would risk erasing some of the rate hikes it has penciled in for this year, higher rate policies that serve as the heartbeat of the dollar's long winning streak. Also in focus this week will be data on how the U.S. economy fared over the final quarter of 2015.