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Currency Market Analysis

Dec 04, 2020 | Currency Market Analysis

Global Themes

The greenback was pinned near multiyear lows ahead of data that may offer more evidence of a moderating recovery from the pandemic. Sterling and the euro held firm with the former near one-year highs while the latter notched a new 2 ½ year peak. Canada’s loonie strengthened to two-year peaks as oil prices rose, cheering an OPEC agreement to only gradually boost production. All eyes today are on America’s job market with November payrolls on tap. Hiring likely slowed to less than 500,000 jobs last month after the economy cranked out nearly 640,000 in October. An in line or better than expected print would likely keep the U.S. currency singing the blues. But a worse than expected result could lend the buck a momentum safe have boost if it should spook markets. Regardless of the outcome, hiring is expected to worsen before it gets better, which would increase call for more dollar-negative stimulus.


Divergent U.S.-Canada jobs data, the latter’s favor, sent the loonie to fresh two-year peaks. Canadian hiring slowed to an increase of 62,100 in November, beating forecasts of a slowdown to 20,000 from October’s gain of 83,600. All the hiring came from full time jobs giving the report a bullish glow. Unemployment dropped to 8.5% from 8.9% but for the wrong reason as the workforce decreased slightly. The relative resilience of Canada’s job market last month compared to the U.S. could lend traction to USD/CAD’s decline to October 2018 lows.


The dollar was camped near its lows after U.S. hiring last month proved far weaker than expected. America netted 245,000 jobs in November, the smallest amount in six months, after adding 610,000 in October. Unemployment improved to 6.7% from 6.9% with the reduction coming for the wrong reason: A smaller workforce. The dollar could be in line for a momentary boost if the data should rein in global market exuberance. A bleak road ahead for the economy and job market due to the worsening pandemic and business restrictions will leave the dollar prone to sustained selling in the weeks ahead.


The euro scored another 2 ½ year peak against the dollar and was poised for a more than 1.5% appreciation for the week. The euro added to its gains thanks to better than expected news from the bloc’s biggest economy. German industrial orders soared nearly 3% in October, nearly two times better than forecasts of a 1.5% increase. The data suggested that Europe’s biggest economy started the fourth quarter in a higher gear than previously thought. Next week looms large for the euro when the ECB renders its final policy decision of the year, when the central bank is expected to weigh in on the single currency’s economy-negative surge to April 2018 peaks.


Sterling hovered near the previous day’s one-year peak against the weak dollar. Sterling remained on a hot streak despite the hot and cold Brexit negotiations. UK and EU officials are scrambling to clinch a trade agreement ahead of the year-end expiry of a transition phase. The market is priced for a deal or at the very least a possible extension to the talks that avoids economy-crimping tariffs starting next year.

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