Oil Continues to Move Higher, Canadian Dollar a Bit Stronger.

The dollar whittled away gains seen yesterday following the release of the FOMC minutes. EUR-USD recovered above 1.2050, over 50 pips up on the post-minutes low, while USD-JPY settled to a choppy range around 112.50 after logging a high in early Tokyo trading at 112.77. The narrow USD index (DXY), at 91.94, was showing a 0.2% decline as of the early PM in Europe, though remain up on Tuesday’s four-month low at 91.75. AUD-USD, meanwhile, rallied to a three-month high of 0.7857, as did NZD-USD. USD-CAD also came under pressure, though the pair remain above the week’s trend nadir. What is notable is that even the prospect for a robust U.S. December jobs report tomorrow hasn’t so far been having much dollar-supportive impact.

[EUR, USD]
The euro is consolidating after a period of outperformance, which saw the common currency making four-month highs versus the dollar, a 26-month high against the euro and a 36-month peak in the case against the Swiss franc. The hawkish soundbites in the Fed’s minutes from its December FOMC meeting along with expectations for a robust U.S. jobs report tomorrow have given reasons for EUR-USD to pause, and this dynamic has seemed to have spread among the euro crosses. We forecast the U.S. jobs reports with a 225k headline (median 190k), made up of a strong private jobs figure of 220k, and with the jobless rate holding steady at 4.1%. There is upside risk to report following the strong ISM manufacturing report, and other data evidence. Key EUR-USD resistance is at 1.2092, which is the September major-trend peak, and 1.2100. Support is at 1.2000-03, levels which encompasses yesterday’s low. A daily close below the latter zone would likely portend potential for a relatively sustained correction.

[USD, JPY]
USD-JPY has given back of half of its post-FOMC minutes gains in declining to around 112.50. A peak was logged at 112.77 before Japanese corporate selling after the Tokyo fixing put a cap on the pairing, which yesterday lifted from around 112.30 after the minutes showed Fed members contemplating that the tax cut could boost consumption and capex. In Japan today, the final December manufacturing PMI was revised to 54.0 from the flash outcome of 54.2, while BoJ Governor Kuroda (who will be stepping down this year) said that the economy was showing steady growth. Geopolitical concerns are in the mix, particularly concerns that North Korea will conduct another provocative ICBM text, a backdrop that has seen markets build up a premium in the yen. We expect the U.S. jobs report tomorrow may provide an offset to this, anticipating a dollar supportive outcome. USD-JPY has support at 112.27-30.

[GBP, USD]
Cable posted a bearish engulfing day yesterday, with its range more than wiping the gains of the day before, portending a halt to the recent rally from sub-1.3400 levels to the four-month high at 1.3613. Softer than forecast construction PMI data out of the UK, which followed Tuesday’s miss in the manufacturing PMI report, catalysed sterling selling earlier in the week, while today’s release of the UK December services PMI came in near expectations at 54.2 in the headline reading, recovering from the dip seen in the month prior to 53.8. Cable has resistance is at 1.3610-13, and support is at 1.3500. A daily close below 1.3520 would build the case for a shift in directional bias to the downside.

[USD, CHF]
EUR-CHF has been emblematic of the euro’s rally since mid 2017. The cross logged a 36-month peak last week at 1.1777. Over the last six months, the franc has seen its biggest weakening (both against the euro and in trade-weighted terms) since the Eurozone crisis took hold back in 2010. The Eurozone has seen political threats diminish, which has been accompanied by steady and assured pickup in growth momentum. This backdrop, along with the enticement of the SNB’s -0.75% deposit rate, have seen the franc unwind any vestiges it had of being a safe haven currency. Assuming the Eurozone can conquer existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable (the central bank reaffirmed this commitment at its recent quarterly policy review), we anticipate EUR-CHF will make an eventual return to 1.2000, which was the former floor the central bank maintained until January 2015.

[USD, CAD]
USD-CAD has settled in the lower 1.25s after logging a 10-week low at 1.2499 on Tuesday. The pair has broken lower over the last week, through two-month range lows at 1.2613-23, which now revert as resistance levels. General U.S. dollar weakness and the CAD-favourable break higher in oil prices, which have traded above $60 for the first time since mid 2015, have been weighing on the pairing. We anticipate that the pairing will lose directional impulse into the duel release of the U.S. and Canadian employment reports this Friday, the net outcome of which we expect will be positive for USD-CAD. We forecast the U.S. jobs reports with a 225k headline (median 190k), made up of a strong private jobs figure of 220k, and with the jobless rate holding steady at 4.1%. We expect the Canadian jobs report to show a 5.0k gain in jobs, correcting after the 79.5k surge in November, with the unemployment rate edging up to 6.0% from 5.9%. Ahead into 2018, how the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiatios go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD. Trend support is at 12470.