Currency Market Analysis

Dec 04, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar clawed back some of the previous day’s massive losses, the most in six years, but it still had a noticeable contusion. Whether renewed selling or fresh healing await the dollar today will hinge on the outcome of America’s monthly jobs report, potentially the Federal Reserve’s ticket to it's first rate hike since 2006. The euro, meanwhile, retained the bulk of its best single-day rally in six years when it soared some 3 percent after the European Central Bank (ECB) stopped short of delivering bazooka-caliber stimulus. Positioning worked in the euro’s favor as many had severely shorted or sold the single currency in anticipation that the European Central Bank (ECB) would shock and awe its economy back to prosperity. The euro’s immediate prospects have brightened a bit but divergence in all things with the U.S. should keep a longer run headwind on the single currency. Both the U.S. and Canada release key jobs data today.


The morning after the euro’s biggest rally in years found it mildly softer, though it retained the better part of its European Central Bank (ECB)-inspired gains. The euro had few friends heading into the European Central Bank's (ECB's) final meeting of the year, with many expecting the 19-country central bank to unveil another bazooka in the form of deep interest rate cuts and bigger monthly bond purchases that aim to make credit more affordable for consumers and businesses. But the euro ended Thursday as the most popular unit after the European Central Bank (ECB) underwhelmed in slashing a key rate by a modest 10 basis points and added six months to its bond buys whose new expiry is penciled in for March 2017. With recent bearishness proving overblown, the euro stands to recoup some lost ground. Still, many euro bears lurk near the surface and are likely to pounce anew should the Fed raise U.S. rates on Dec. 16.


Sterling hovered above seven-month lows, taking advantage of the beaten down dollar. Pound bleeding of altitude also found a tourniquet in news of healthier U.K. services growth in the latest period. Still, gains for sterling are unlikely to prove the meaningful variety, with the Fed on track to fire a rate hike before its U.K. counterpart.


The Aussie dollar ducked a little under seven-week highs, though it still stood on firmer ground thanks to stronger growth last quarter that helped tamp down the risk of further rate rates anytime soon Down Under.


The loonie is at risk of new lows after Canada shed more jobs than expected, and the nation’s trade gap unexpectedly swelled. Canada shed 35,700 jobs in November, though the quality of the report wasn’t quite as poor as the headline suggests as job losses came from less meaningful part-time positions. Unemployment jumped to 7.1 percent from 7.0 percent, while the trade deficit widened to C$2.8 billion in November from C$2.3 billion.


Let the dollar healing and Fed rate hiking begin. That was the takeaway from America’s latest jobs report which was solid and potentially punched the ticket to higher interest rates on Dec. 16, the Fed’s final announcement of the year. America netted 211,000 jobs in November while October’s gain proved even more robust, getting revised to 298,000 from 271,000. Unemployment steadied at 5.0 percent, while pay growth rose 0.2 percent. For all its bullishness, cracks have started to appear in the dollar’s foundation, leaving it vulnerable. Dollar strength has shown renewed signs of slowing the economy, while deep-seated euro bearishness has undergone some rehabilitation. 

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