Currency Market Analysis

Feb 06, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar steadied around multi-month highs as attention remained on the coronavirus and America’s resilient economy. Fresh evidence of a vulnerable German economy kept the euro pinned at two-month lows while rivals from Japan, Switzerland and Britain also favored their back foot. Canada’s dollar stabilized near two-month lows as oil edged up towards $51. The perception that global central banks would, in the words of former ECB chief Mario Draghi: ‘do whatever it takes’ to blunt the economic fallout from the coronavirus served as a green light for risk taking. Higher Treasury yields boosted the dollar, along with bullish numbers this week on U.S. manufacturing, ADP hiring and services growth. Whether the dollar’s rally to two-month highs has reached overbought levels may be gleaned from Friday’s government jobs report for January. A solid jobs report would enhance greenback fundamentals but it could also catalyze a bout of profit-taking.

CAD

A little changed Canadian dollar stuck near two-month lows. Market sentiment has brightened a bit this week in the wake of central bank action to limit the economic damage from the coronavirus. Oil prices have shown tentative signs of bottoming, helping to slow the loonie’s descent. Next up for the loonie will be a Friday snapshot of the health of Canada’s labor market. Forecasts call for a second straight month of hiring and steady unemployment at a low 5.6%. How the labor market fared last month will shed light on the likelihood of Canada cutting interest rates as soon as the spring.

USD

The U.S. economy’s stellar week continued as weekly jobless claims improved more than expected with the 202,000 print the lowest in nine months. A run to stronger data this week has pushed back prospect of a Fed rate cut to around November from July. The economy has one big hurdle to clear this week in Friday’s nonfarm payrolls report. Forecasts call for faster hiring of around 160,000, unemployment remaining at a low 3.5% and higher wages. While a strong jobs report would be dollar-positive on the surface, the greenback could also fall prey to the classic ‘buy the rumor, sell the fact,’ a scenario that could leave it vulnerable to profit-taking after outperforming this week.

EUR

The euro literally hit the floor after German industrial orders unexpectedly decline with the 2.1% plunge in December the largest in 10 months. While Germany’s weak fundamentals will leave the euro susceptible to further downside risk over the short run, technicals are offering a modicum of support. The euro’s penchant for not yet staging a decisive break below key support has limited bouts of weakness.

GBP

With the week’s main U.K. data releases having come and gone, the pound revisited the bottom of its range as attention shifted back to uncertainty over negotiations for a long-term trade agreement between London and Brussels. Sterling caught a bounce higher this week after upbeat data like services growth, the lifeblood of the U.K. economy, topped forecasts and offered evidence of a nascent, post-election rebound in growth. Yet any positive traction for the economy could be derailed but uncertainty over a trade deal. 


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