The US dollar suffered its worst losses in seven years on Wednesday, as oil prices rebounded more than 5% and equities stabilized in North America. This most recent course-correction was the result of news that Russian leaders had agreed to meet with OPEC to discuss cutting output to stabilize per barrel prices. The EUR/USD rate finally broke higher, triggering medium stop-losses and edging out of a consolidation period which had constrained price action going back the last three months. Overnight, comments from the Fed’s Brainard fueled the fire as she claimed there are strong reasons on slowing the pace of interest rate hikes in the US. Ms. Brainard, citing concerns over emerging markets including China, made her comments that there is real concern the slow growth in those economies could spill into the US and other developed economies. Sterling continued its rebound as the Bank of England kept rates firm at 0.5% and maintained QE levels at 375 billion pounds.
Very little top tier data to speak of during the overnight sessions out of Europe and Asia. The correction in the dollar remains the key story as global stocks rise on speculation the Fed’s eagerness to hike rates may have been a touch overblow. Oil prices remain elevated as well, dragging gold, copper and other commodity and metal prices higher at the greenback’s expense. The ECB’s Draghi made some comments to little fanfare, defending his committee’s past response to low inflation. Mr. Draghi reiterated the ECB will continue to fight hard against low inflation and seems comfortable preparing the market for more action in March. Despite his dovish rhetoric, the euro continues to soar, now trading at its highest levels since late October.
On Wednesday, North American trade was guided higher by energy stocks, which spiked with oil prices. Early yesterday morning, it was reported that Russia would consider sitting down with OPEC to negotiate cutting output in an effort to stabilize prices. As oil prices have slipped more than 70% over the last eighteen months, this is welcome news. The greenback was under considerable pressure, battling many fundamental and technical forces. Non-manufacturing and services PMI results were a bit below expectations which generated some dollar selling. The EUR/USD rate exploded higher, moving out of a period of consolidation that had defined price action since US Thanksgiving. Today, US jobless claims kick off the data calendar at 830am, twenty-four hours before the January non-farm payrolls report, and December factory orders will be unveiled at 10am. Tomorrow, it is expected that the 205,000 jobs were created to begin 2016.
Turning toward Canada, the Loonie is enjoying its rock-star status, rising with oil prices. The Canadian dollar touched its highest level since January 4th as stop-losses were triggered below key psychological levels. West Texas crude moved above $32 again on the Russia-OPEC rumors which further reinforces the correlation between oil (and commodity) prices along with the Canadian dollar. There is nothing on the data calendar today but tomorrow markets get an insight into the relative strength of the Canadian economy. The January jobs report is expected to announce 1.8k jobs created after a very strong 29.2k created in December. Keep an eye on the participation rate of 65.9% as the market will key in on important details of this report.
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