The dollar reaction to US payrolls on Friday was relatively muted, given the shake-out seen in the middle of last week of dollar longs, but most managed to put the positive above the negatives, which was probably the best way to look at it. Earnings were firmer and the unemployment rate was lower, but with wider measures of slack remaining steady. What the price action of last week has done is to once again change the dynamics of the FX market. The yen has unwound all of the losses seen against the dollar in the wake of the BoJ’s move to move some interest rates into negative territory. It’s far less a question of the dollar vs. the rest of the world, merely because it’s supposedly in a tightening cycle whilst many others are facing in the opposite direction. As to what has replaced this mantra, for now it’s too early to tell.
For the week ahead, China celebrates its new year, so that should in theory put that story on the back-burner. Taking centre stage is likely to be Fed Chair Yellen as she testifies in her semi-annual monetary policy report on Wednesday and Thursday. Naturally, the change in pricing that has occurred so far this year, as compared to their projected rate path in December of last year, could well put her under some pressure on just how the Fed is now seeing the US and global economy. FX is likely to trade in a relatively muted fashion ahead of this, with no key data to distract. Commodities have also been on a more even keel of late, oil seemingly comfortable in the mid-30s level on the Brent active.