Return of the Greenback

After one of the wildest and busiest weeks this year in the forex market, the USD emerges as the clear winner.

Last Friday, the US released their much anticipated Change in Non-Farm Payroll – for the first time, in over a year this report was expected to show to an increase in jobs of 10K last January. Unfortunately, despite analysts’ predictions, the NFP continued to fall by 20,000- reflecting a plunge in construction employment, a drop in state and local government hiring as well as companies decision to boost workers’ hours and overtime instead of hire new employees. Oddly despite a negative NFP, the unemployment rate in the U.S unexpectedly declined in January, to 9.7%-the lowest level since last August. The result of this lower than expected unemployment, fueled the dollar to continue

appreciating against both the Euro and the Pound.

Following last Thursday’s news that both the ECB and the BoE were holding their interest rates at their current historically low levels of 1.0% and 0.5%, respectively, both the EUR and the GBP plummet against their American counterpart. While the Pound fell from its opening price of 1.59004, closed at 1.57656 (falling nearly 0.847%), the Euro reached a new 8 month low, falling a drastic 1.17% and closing at 1.37269.

The tragedy of the Pound and the Euro, continued on Friday following the release of America’s better than expected unemployment rate, as both currencies continued to depreciate against the greenback- with the Euro falling another 0.3635%, closing off the week at an even lower 8 month low of 1.36771 while the Pound continued to plummet to 1.56393.

For the second week in a row, positive news from the US has pushed the greenback towards a strong finish. The only currency that was able to hold its own against the progressively stronger USD, and the positive economic data coming out of the United States was the CAD.

Ninety minutes prior to the release of the US NFP and unemployment rate, Canada announced its employment change of the past month, as well as its current unemployment rate. January’s employment change came out almost three times higher than predicted at 43K versus expected 15.2K (and prior -2.6K). The Canadian Bureau of Statistics reported that while full-time employment rose by 1,400, part-time jobs surged by about 41,500, producing Canada’s fourth increase in employment in the past 6 months. As a result, Canada’s unemployment rate unexpectedly fell from its prior (and predicted) level of 8.5% to 8.3%. Instantly after the release of this positive Canadian economic data, the USD/CAD fell from 1.0750 to 1.0720.

As a result of last week’s intensified hype that the US NFP was predicting an increase in the number of jobs for January, for the majority of the past week, the USD strengthened against its neighbor’s currency. While the positive Canadian unemployment news caused the Loonie to retake some of its lost ground from the USD, the USD/CAD increased a total of 1.03% last week, with the neighboring pair closing at 1.07137.

Later today, the CAD could very well regain some last week’s losses as at 13:15GMT, Canada will announce its Housing Stats. This monthly report, which depicts the annualized number of new residential buildings that began construction on January, is predicting to show an increase of 5K from the previous report (expected 180K versus prior 175K).

Compared to chaotic events of last week, this week seems relatively calm, with the only key economic data of today being the above mentioned CAD Housing Stats. Tomorrow (930GMT), Great Britain will announce its Trade Balance, expected to continue to show a deficit of -6.6B, versus the prior reported deficit of -6.8B. In regards to Trade Balances, on Wednesday both Canada and the US will simultaneously announce theirs. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.