Global Themes

Caution ahead of America’s monthly jobs report caused the U.S. dollar to shift into neutral. The dollar has spent the better part of the week consolidating a 3-week winning streak since the U.S. presidential election that has propelled it to 13-year highs on a trade-weighted basis. Dollar underpinnings could find some strengthening if today’s nonfarm payrolls report shows another month of strong job creation. Forecasts call for November job growth of around 175,000 and unemployment to steady at a healthy 4.9 percent. The data will offer the last major glimpse of the U.S. economy before the Federal Reserve renders a mid-month decision when it is widely expected to fire its first interest rate hike of the year. A solid jobs report would reinforce the dollar’s bullish bias while an underwhelming one would help to cement its first losing week in four. It’s also jobs Friday in Canada with the loonie at 3-week highs ahead of the morning surveys.

EUR

EURUSD managed a two-week peak though sentiment remained skittish ahead of Italy’s Sunday referendum on constitutional changes. How the vote goes could potentially catalyze a big move in the euro. The euro would be in line for a relief rally should Italians vote yes to the changes aimed at making lawmaking easier and quicker. But a no vote would go against the wishes of the prime minster who has pledged to step down, a scenario that could hasten a period of political turmoil and possibly spell trouble for the country’s fragile banking sector. The euro faces another daunting risk event in the week ahead when the ECB makes its last policy call of the year. The 19-country central bank is expected to announce a longer period of monthly bond buying stimulus with the economy still stuck in a low gear.

GBP

Ahead of America’s monthly jobs report, GBPUSD was on a track for a second win in as many weeks. The cable this week strengthened to eight-week peaks, showing signs of forming a meaningful bottom after its crash to 31-year lows in October. Helping its cause has been a reduction in worries about the toll the Brexit divorce with the EU could take on the U.K. economy. Fears of a hard Brexit diminished somewhat this week after a British official sounded open to keeping access to the bloc’s single market by paying its own way. While sterling’s short run prospects look a bit brighter, its longer run outlook remains negative given uncertain circumstances of Brexit.

CAD

Make that a six-week low for USDCAD. The loonie added to its winning week after job growth north of the border surprised to the upside with a gain of 10,700 for November. Unemployment fell two ticks to 6.8 percent. The prints were better than forecasts of a loss of 20,000 jobs and a 7.0 percent jobless rate. However, a closer look at the data revealed less than rosy detail as all the hiring came from less meaningful part-time jobs while the size of the workforce contracted. The data should be solid economy to stay the Bank of Canada’s hand on interest rates on Dec. 7 but soft enough to keep a rate cut in the longer run conversation which ultimately is loonie-negative.

USD

The last U.S. jobs report of 2016 was a bit of a yawner for the dollar which emerged little scathed in its wake. Hiring was in line with forecasts, showing a gain of 178,000 for November, but the drop in the unemployment rate to a nine-year low of 4.6 percent came at the hands of a smaller workforce. Wages disappointed with a mild contraction. The data should be decent enough for the Fed to deliver a much-anticipated quarter-point rate hike on Dec. 14 but also soft enough to allow a dollar correction to crystalize, a normal consolidative move after a big rally over a short period. The dollar’s broader prospects remain bullish.

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