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Home » Market News » Weekly Outlook - February 6, 2012 »

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Last week in review

Main theme driving the FX market: Market confidence waxed and waned along with the status of Greece’s negotiations with private bondholders on a debt swap agreement. Overall risk tolerance held up well after data from the world’s leading economies showed surprising resilience to begin the year. Australia’s dollar rose to five-month highs against the greenback while the neighboring kiwi dollar soared to record heights on the euro.
U.S. Dollar: Dollar sentiment brightened a week after the Fed had dealt it a setback with its longer horizon for a potential rate hike. Crowning a week of upbeat indicators, the U.S. economy added the most jobs in nine months in January, spurring optimism for a sooner than expected Fed rate increase. Moreover, jobless claims declined more than expected and the manufacturing and services sectors expanded at the fastest pace in at least seven months.
Euro: The long and winding road to an agreement between Athens and private creditors over a crucial debt swap gnawed at euro sentiment, halting its two-week upswing against the greenback. Lurking just below the surface are worries that Portugal might follow in Greece’s footsteps and need another rescue loan after Lisbon’s borrowing costs soared to record highs.
Japanese yen: The yen had been among the week’s star performers until the U.S. jobs report hit the wires. The dollar nearly erased losses on the week against its Japanese rival after U.S. Treasury yields jumped on news the world’s largest economy added 243,000 jobs in January, the most in nine months.
Canadian Dollar: Signs of a resilient global economy buoyed the loonie to three-month highs against its American counterpart. But Canada’s dollar plunged to its lowest since at least 1997 against the Australian dollar as its close relationship with the U.S. gave an added lift to higher-yielding currencies. Canadian job growth unexpectedly stagnated in January, pointing to an economy losing steam.

Recent Key Releases

Highlights for this week

United States: A lighter than usual U.S. economic lineup this week features reports on weekly jobless claims, the monthly trade gap and consumer sentiment. Given the dearth of American indicators, last week’s strong jobs report might have a lingering impact on the dollar.
Euro-zone: The status of Greece’s debt talks and a meeting of the European Central Bank’s rate-setting governing council should be this week’s primary drivers of euro sentiment. Although the ECB is likely to keep rates steady at 1% this month, it could flag a rate cut in the months ahead with the threat of a euro zone recession on the horizon.
Britain: The spotlight will shine brightly on the Bank of England which could announce Thursday another round of asset purchases to help safeguard the economy against the risk of recession. It wouldn’t be out of the question for sterling to rally this week even if the BOE acts to support the economy, since such a move has long been built into the pound’s exchange rate.
Japan: With the state of Japan’s fiscal health increasingly under the microscope, investors will study a report Wednesday on the nation’s current account balance. Players will also look to data on leading indicators, manufacturing orders and wholesale inflation. Any further spike in the yen could prompt Tokyo to take action to staunch its export-crimping strength.
Canada: Whether the loonie can hold above a key threshold against the buck should largely hinge on how confident investors are with Europe’s handling of its debt crisis, which tends to set the tone for broader risk sentiment. Local data on manufacturing, housing and trade will also be closely watched for clues on the strength of Canada’s economy.