FX Weekly Outlook: Euro Remains the Weakest Link, Dollar Finds Support from Powell's Speech

FX Daily: Euro remains the weakest link

The dollar starts the week in mixed fashion. USD/JPY is trading at a new corrective low, while EUR/USD continues to lick its wounds after a torrid session on Friday. The highlight of this week's data calendar will be the November US jobs report on Friday; there are also central bank policy meetings in Canada and Poland

USD: Powell speech provides some support

The dollar turned a little higher on Friday - largely led by the drop in European currencies after investors latched onto some dovish comments from ECB officials. Also supporting the dollar later in the day, however, were comments from Fed Chair, Jay Powell.  He was much more equivocal than his colleague, Christopher Waller, who earlier in the week had signalled that the inflation battle was nearly won. Indeed, Powell's comments left in the prospects of further rate hikes - which very few in the market believe will materialise. 

Against this backdrop will the dollar trade on US data this week. Given the blackout period ahead of the FOMC meeting on December 13th, there will be no Fed speakers this week. Instead, the focus will be on some quite important data. Beyond today's Durable Goods Orders, tomorrow sees the release of US services ISM and the JOLTS job opening data. Do job openings correct back lower and suggest a better balance in the US labour market - a mild dollar negative? Wednesday then sees the discredited ADP jobs data ahead of Thursday's initial claims.

But the main event of the week is the November NFP report on Friday. Consensus expects a modest +180k, an unchanged unemployment rate and steady average earnings. Given a propensity for investors to put money to work outside of the dollar, we think a consensus outcome would be a mild dollar negative. We think it would really have to be a strong number to put the idea of another Fed rate hike back on the table.

We favour DXY trading a 103-104 range through the week and suspect that investors will have a bias to sell in the 104.00/104.20 area.