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European Session – Oil stabilizes at $29, Canadian dollar bounces

Currency markets are starting the week off on a calmer note, benefiting from a slight improvement in risk appetite. The safe haven Japanese yen weakened as a result and was one of the worst performing major currencies on the day. A quiet economic calendar helped keep markets subdued. It is also a bank holiday in the US. However the week will get busier, with market focus turning to central bank meetings in the Eurozone and Canada, while investors will also eye GDP data from China on Tuesday, which could have an impact on commodity currencies and risk appetite.

The euro was stuck in a range, remaining in the 1.09 handle against the dollar. The ECB policy meeting later this week will be the main risk event for the single currency. While no policy action is expected, investors will look out for ECB President Draghi’s press conference for his comments on the economic outlook for the euro area and for any clues on whether further stimulus is a possibility in the months ahead.

Sterling was better supported in the European session by risk appetite, trading around 1.4280 versus the dollar. UK inflation data due tomorrow are key, as are data on employment on Wednesday and retail sales on Friday.

The dollar steadied versus the yen to move further off 5-month lows and peaked at 117.43 yen. The rest of the session is expected to be quiet as US markets are closed today for Martin Luther King Day and there are no economic data releases during the US session.

The Canadian dollar was slightly up from Friday’s close, having recovered from another sharp drop versus the greenback in early Asian trading. USDCAD peaked at 1.46, a new 12-year high, before easing back down to 1.45. Near term risk for the loonie lies in the Bank of Canada policy meeting on Wednesday, with expectations of a 25 basis point rate cut to 0.25%.

The Australian dollar performed better in the European session after a brief drop in Asia today. The aussie remains below 0.69 versus the greenback and is unlikely to gain further due to upcoming data releases from China. Q4 GDP and December retail sales figures are out on Tuesday.

Oil prices are showing signs of stabilization, moving off fresh multi-year lows after having gapped lower in Asia in response to the lifting of sanctions on Iran over the weekend. This would allow Iran to freely export crude oil again. Oil prices are hovering around the $29 a barrel level.

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