Currency Market Analysis

Jan 14, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar was mostly steady as it looked for a steer today from fresh jobs data and President-elect Biden’s plan to stimulate the world’s biggest economy. The buck was flat to firmer against the euro, yen and sterling, while risk-on markets supported the Aussie, kiwi and Canadian dollars. U.S. Treasury yields rose, the key ingredient behind the greenback’s rebound. Markets were mostly unperturbed by President Trump’s second impeachment as they looked ahead to the incoming Biden administration’s playbook to rejuvenate a recovery that’s lost significant steam. U.S. jobless claims are forecast to rise anew and flirt with 800,000 in the latest period. Any disappointment in the claims data would bode bearishly for a job market that unexpectedly bled workers in December.

CAD

The Canadian dollar steadied as higher stock futures signaled risk appetite which offset a pullback in oil. Downside for the loonie has been limited by buoyant oil which is hovering close to 11-month highs around $53. The loonie will look for a central bank steer when the Bank of Canada issues its first policy decision of the year on Jan. 20. No change in policy but an openness to lower rates in the wake of weaker data could prove supportive of USDCAD.

EUR

Europe’s No. 1 economy faring slightly better than expected last year wasn’t enough to break the euro’s fall from nearly three-year peaks. The single currency fell to one-month lows against its recovering U.S. counterpart after data showed Germany contracted by 5% in 2020 which stopped short of the record 5.7% slide in 2009 when the global financial crisis flared. The euro’s technical tone has deteriorated after it broke below its 10- and 21-day moving averages, moves that opened the door to further weakness over the short run.

GBP

The U.K. pound edged down from recent highs but kept to the upper end of its range, buoyed by the Bank of England downplaying prospects of an imminent adoption of negative interest rates. Nevertheless, markets haven’t thrown in the towel on subzero rates given the fragile shape of the U.K. economy. British data Friday on monthly growth and factory output will hint at the extent to which the economy moderated in late 2020.

USD

The greenback held firm in the wake of more sobering news on America’s sputtering job market. Weekly jobless claims soared to 965,000 in the latest period, far above forecasts of a still-high 795,000, and the last print of 784,000. The data comes on the heels of a monthly jobs report that contracted for the first time since the spring. While seasonal factors may have exacerbated the weakness, the weakening direction of the data could cap dollar gains by quashing prospects of the Fed winding down, or tapering, stimulus somewhat sooner.    


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