• Market awaits tomorrow’s U.S. jobs data,  expecting higher numbers in non-farm payrolls

  • Euro holds just below  key psychological level of 1.36

  • Commodity currencies push higher with strong economic backdrop

USD - The dollar gained slightly against the Euro and hit a 2 ½ year high against its Japanese counterpart after the November Chicago PMI was revised higher.  The November Chicago PMI was revised from 48.9 to 50.0, while December’s figure beat a forecast of 50.5, coming in at 55.6.  The slightly stronger Dollar overcame the negative sentiment in the U.S. after yesterday’s negative GDP release, cementing the fact that the U.S. economy is slowing and that the Federal Reserve will have to keep its stimulus policy in place in order to continue to lower unemployment.  The market is turning its attention to tomorrow’s release of U.S. jobs data.  The all-important non-farm payrolls figure is expected to come in at 160K, slightly stronger than December’s reading of 155K. 

EUR - The Euro held close to yesterday’s high of 1.3588 despite the release of weak German retail sales figures and on the heels of a drop in unemployment.  Retail sales fell by 4.7 percent, hitting a three year low, while the Federal Labour Office stated that seasonally adjusted unemployment fell by 16,000 in January, pushing the jobless rate down to 6.8 percent.  Europe’s single currency has gained 3 percent this month, and despite the lackluster retail sales figures is poised to continue to remain well bid, holding below the key psychological level of 1.36. 

GBP - Sterling recovered from earlier lows this morning against the dollar and the euro, but is poised to weaken over concerns that the UK could slip into another recession.    The pound has already dropped nearly three percent against the dollar this year and analysts expect further weakening with the Bank of England looking toward a looser monetary policy.  The market will look towards tomorrow’s release of UK manufacturing PMI data.  Expectations are for a reading of 51.0, however, if the number comes in below 50, this would cement further economic contraction and sterling could sell off broadly.  

JPY - The Japanese Yen bounced back slightly reaching the 90.70 level during the day against the US dollar following Japan’s positive manufacturing data in December, but still remains at its lowest level in 2 ½ years.  BoJ Deputy Governor Yamaguchi said that policy is not directly aimed at influencing the currency, but instead watching the effect of FX moves on the economy helps guide policy making, which may indirectly weaken the yen.  Yen should remain weak in the dollar/yen exchange rate currently trading in the 91 ranges.

Commodity Currencies - The Canadian dollar and New Zealand dollars both pushed higher against the greenback after data showed that Canada’s economy grew a faster than expected 0.3 percent in November and after the Reserve Bank of New Zealand (RBNZ) struck a hawkish tone, citing the potential for higher home prices.  The Australian dollar was little changed against the dollar and weakened against the euro to a 13-month low, but held close to a four-year high versus a weaker yen.  Look for commodity currencies to hold on to their recent gains, potentially pushing higher with a back drop of strong economic data and a rising interest rate environment.

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