Daily Currency Update

USD - US Dollar

The USD is strengthening after recent gains, maintaining its momentum from the New Year amid cautious market trading and rising bond yields before today's US data release. The potential for USD recovery is growing, with investors likely to buy during minor dips. However, this recovery may be short-lived, as seasonal patterns show the DXY typically weakens in the second and third quarters. The US economy is also slowing down, and upcoming data could affect USD sentiment. USD calls are gaining favor in risk reversal pricing. Today's agenda includes a speech by FOMC voter Barkin, November JOLTS data, the December ISM Manufacturing report, and the release of December FOMC minutes, which might reveal discussions about interest rate cuts.

CAD - Canadian Dollar

The CAD has shown slight weakness in the current session, but its losses are relatively small compared to other major currencies, despite a generally stronger USD. The CAD is facing short-term challenges due to subdued risk appetite and declining commodity prices, but tighter spreads are mitigating these losses for now. The spot rate remains below our estimated equilibrium, and the factors are gradually turning less favorable for the CAD. Following a period of significant undervaluation, the USD/CAD pair might be realigning towards levels nearer to its estimated fair value, which is currently at 1.3505. Observe USD/CAD trends.

EUR - Euro

Germany's unemployment increased by 5,000 in December, which was less than the anticipated 20,000 rise. The unemployment rate slightly increased to 5.9% for the month, up from a revised 5.8%. The decline in EUR/USD reflects a slowdown in its upward trend rather than a substantial change in fundamental factors. The substantial accumulation of EUR long positions towards the end of last year makes the currency vulnerable to adjustments as these positions are unwound.

GBP - British Pound

Sterling has stabilized in the low 1.26 range during overnight trading. With no UK data releases today, markets are in a holding pattern awaiting today's economic news from the US. Generally, sterling appears to be as susceptible to losses against the recovering USD as the EUR.