With the U.S. equity and bond markets closed for trading, it has been an exceptionally quiet day in the foreign exchange market. Any volatility was limited to the European trading session, where the dollar sold off aggressively against many of the major currencies. Between 8am and 4pm NY time, there was virtually no movement in the foreign exchange market. 

EUR/USD was markedly weaker  falling through the 1.3300 level on the first trading day of the week as a steep drop in  the Shanghai index and disappointment over Germany’s reluctance to add more capital to the EFSF fund prompted heavy selling in the pair unwinding a significant part of last week’s gains. Ahead  of the EcoFin meeting scheduled for today and tomorrow, German Finance Minister Wolfgang Schäuble said that Berlin does not support increasing the size of the euro zone rescue fund, noting that last week’s  reports that the EU is planning such a move were a “misunderstanding”.

What the U.S. economy needs the most right now is jobs. It is the missing ingredient in the U.S. recovery that has frustrated Federal Reserve officials the most and explains why the dollar fell sharply following this morning's U.S. economic reports. 

The bar was set high for today’s jobs number and unfortunately investors were sorely disappointed.  Non-farm payrolls rose a mere 103k in the month of December, sending the dollar sharply lower.  

It was a disappointing close to the month on Friday for those looking to grasp risk by the horns after Thursday”s US GDP release. All the positive sentiment evaporated and Wall St gave back all the gains, and some more, though there was no one specific news item or event that triggered the heavy aversion to risk. Indeed, US data releases were generally better than expected with the Chicago PMI coming in at a very strong 54.2 versus 49.0 expected while the final University of Michigan confidence was revised higher to 70.6. The continued improvement in these kinds of numbers may be an encouragement to the bulls ahead of this week’s various ISM releases.

As trading kicked off for the week risk appetite rebounded with EUR/USD and AUD/USD gaining more than 70 points at the start of European trade. Part of the boost came from continued expansionary readings in global PMI manufacturing surveys all of which printed firmly above the 50 boom/bust line.

Bank of Japan maintained its overnight interest rate at 0.10% - the lowest in G10 universe – but removed some key stimulative measures which triggered a small rally in the yen. The central bank stated that it would end its outright purchase of corporate bonds and commercial paper in December noting that “it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets.