The dollar bounced against the majors at the start of the week, rallying to 1.3555 versus the euro from 1.3962 and edging up to 93.56 against the yen. The greenback climbed higher on a combination of a proposed fiscal stimulus plan by President-elect Barack Obama and profit taking from the euro's sharp year-end gains - jumping to its highest level in 3-weeks versus the single currency.
A barrage of economic reports is slated for release from the US this week culminating with the highly anticipated December jobs data. The Tuesday session consist of December non-manufacturing ISM, durable goods orders, and pending home sales. Non-manufacturing ISM is expected to drift lower to 37.0 in December from 37.3 a month earlier, while pending home sales are seen deteriorating further with a 1.0% decline from a loss of 0.7% previously. Although the calendar on Wednesday is light, traders will closely scrutinize the ADP private-sector payrolls data - which is estimated to plunge sharply to -473k in December versus -250k a month earlier. The key highlight of the week will be the December jobs report, with the unemployment rate expected to spike to its highest level since 1993 to 7.0% from 6.7% in the previous month. The non-farm payrolls reading are seen revealing a loss of 500k jobs in December versus 533k in November.
The euro relinquished its gains versus the dollar and sterling, prompted by profit-taking following December's sharp run-up. Fears that economic conditions in the Eurozone will continue to deteriorate rapidly and lead the ECB to aggressively cut rates further have weighed on the euro.
The calendar from the Eurozone will see Germany's December labor report, Eurozone November PPI, December consumer sentiment, Germany's November trade balance, industrial orders, Eurozone unemployment, retail sales, and Germany's Industrial production.
We expect the euro to extend its slide over the coming week with our initial target against the dollar around the 1.33-handle. Interim support is expected at 1.3575, followed by 1.3540 and 1.35. Additional floors will emerge at 1.3460, backed by 1.3430 and 1.34. Gains will encounter ceilings at 1.3650, followed by 1.37 and 1.3740. Subsequent ceilings will emerge at 1.3770, backed by 1.38 and 1.3840.