USD - The dollar remains on the defensive after last Friday's disappointing jobs reports. The US economy shed 131,000 jobs in July, capping a streak of weak economic results that have raised concerns that the recovery is stalling. The greenback fell to multi-month lows vs. many of the major currencies after the report as treasury yields tumbled on speculation that the economic slowdown may prompt the Fed to implement additional monetary easing measures. Markets are turning attention to the results of the FOMC meeting tomorrow for further clues on the Fed's next move. The dollar outlook has shifted in recent weeks from safe haven currency as fears of an European debt default have subsided to low yield status as the softening recovery and extended low rates in the US have investors seeking higher returns elsewhere. Given this, the dollar is likely to remain under pressure in the near term until the economy regains momentum and yields return.
EUR - The euro rose to 3-month highs vs. the dollar after Friday's weak jobs report. The single currency climbed to highs at $1.3333 in a sign that investor's worries over Europe's fiscal woes have taken a backseat to higher economic growth rates. Positive economic news continues today with Germany reporting that exports rose 3.8% in June reinforcing views that Europe's recovery remains intact. In a further sign that investors are feeling more confident, the Eurozone Sentix sentiment index surged to 8.5 in August, reversing July's -1.3 reading and eclipsing all forecasts. Given this, the euro is likely to build upon its gains as yield seeking investors return.
GBP - The GBP was unable to break through resistance last week despite the weak news coming out of the US. The 1.600 level remains strong resistance as the market tried three times to break this level without success. While the level should be tested again this week, market sentiment has sterling falling back toward the 1.5870 support level. This week is light on economic releases, but on the 11th there is both the Jobless Claims and the Bank of England's quarterly inflation report. With inflation still elevated (above 3% on both core and headline), the BoE is increasingly finding themselves in a difficult position. While growth is still subdued, the potential to have to raise rates will not be positive for the sterling. Expect trading to be light as the vacation season is still in full force in the UK.
JPY - While USD-JPY heads to fresh 15-year lows, traders are squaring up going into the Bank of Japan policy meeting on Wednesday. Even though the BoJ is widely expected to leave rates unchanged, the market is a bit squeamish with the Japanese central bank concerned about the historic strength of the JPY. Recent central bank actions have been limited to verbal intervention in the currency markets but don't be surprised if they start buying the USD if USD-JPY gets to the 80.00 level, a key technical barrier. Threat of BoJ intervention, coupled with the thin summer trading volumes should make for a lot of volatility in the coming weeks.
CAD The loonie is trading flat near 1.0275 today ahead of tomorrow's U.S. FOMC meeting. Last Friday, the loonie plunged over 1.2% on news that Canada's economy unexpectedly shed 9,300 jobs in July, the first decrease this year following a 93,200 increase in June, while the U.S. lost 131,000 jobs. Although Canada's economy created 393,700 jobs since July 2009, the market is concerned that disappointing U.S. data may impact Canada's economic growth. Canada's economy is growing, but not as strong as expected. Thus, the Bank of Canada may slow rate hikes after raising rates for the second month in a row on July 20 to 0.75%. Data to be released this week are July housing starts (8/10), int'l merchandise trade ((8/11), and new motor vehicles sales data (8/13).
MXN - The Mexican peso took over 1% loss against the greenback last Friday following weak US employment data. As the nation's largest trading partner, the US purchases about 80% of Mexico's exports. Therefore, any significant US data releases will have great influence on investors' confidence in the peso. Steady trade balance data and consumer prices data for July released today allowed the peso to recoup some of last week's losses, currently trading at 12.6440 per dollar.
AUD - The Australian dollar is near 3-month highs vs. the dollar on a strong domestic economy. Aussie rose to highs at $0.9205 overnight after job advertisements rose to an 18-month high in a sign that the labor market remains firm. With unemployment at 5.1%, a drop in the rate below 5% per the country's jobs report later this week may prompt the Royal Bank of Australia to raise rates further from 4.50% presently. Being among the higher yields globally, the Aussie is likely to remain well supported.