FX Market Outlook: Dollar Weakness and Oil Strength Drive G10 Moves Ahead of US Jobs Report

Headlines & Market Snapshot

Major currency pairs trade with cautious optimism as the US Dollar softens ahead of the delayed January Nonfarm Payrolls release. Disappointing US retail sales, steady ECB policy, rising oil prices, and shifting Bank of England and Bank of Canada expectations are shaping near-term momentum across EUR/USD, GBP/USD, USD/CAD, and NZD/USD. With labor market data due, volatility risks remain elevated.

Market Overview

The US Dollar remains under pressure following weaker-than-expected US Retail Sales data, reinforcing concerns about slowing consumer momentum. While Federal Reserve officials maintain a data-dependent stance, markets are increasingly sensitive to employment figures that could alter rate-cut expectations for 2026.

In Europe, the ECB’s decision to hold rates steady continues to support the euro, particularly as relative rate expectations modestly favor the single currency. In the UK, political uncertainty and rising speculation of a Bank of England rate cut complicate sterling’s outlook. Meanwhile, firm crude oil prices are strengthening the Canadian Dollar, adding downside pressure to USD/CAD.

The dominant catalyst remains the delayed US January Nonfarm Payrolls report, forecast at roughly 66K–70K job gains with unemployment steady at 4.4%. A meaningful deviation from expectations could sharply reprice USD positioning across the board.

Technical Summary (Illustrative – Update with Live Data Before Publishing)

Analyst Commentary

EUR/USD

EUR/USD reclaims the 1.1900 level as USD weakness accelerates ahead of labor data. The technical structure remains constructive, with all major moving averages aligned bullishly and RSI comfortably above 50. However, positioning risk is elevated. If NFP beats expectations decisively, the pair could quickly retest 1.1800. Sustained upside requires confirmation that US labor conditions are cooling.

GBP/USD

Sterling is stabilizing despite mounting political pressure and rising expectations of a BoE rate cut. Technically, the structure favors buyers, but fundamentals are mixed. Political uncertainty limits aggressive long positioning. If US data disappoints, GBP/USD could extend toward 1.3800; otherwise, downside toward 1.3500 remains plausible.

USD/CAD

USD/CAD continues to trend lower, pressured by firm crude oil prices and improving Canadian labor data. The technical picture is decisively bearish, with RSI near oversold territory. However, with positioning stretched, a strong US jobs report could trigger a corrective rebound. Oil remains the key swing factor for CAD strength.

NZD/USD

NZD/USD trades at a two-week high as USD softness and broader risk-on sentiment support the Kiwi. Chinese PPI weakness increases stimulus expectations, indirectly benefiting NZD. However, domestic labor softness limits the case for sustained RBNZ tightening. Momentum favors further upside, but NFP remains the primary risk event.

AI Q&A

Q1: What is the biggest risk for USD positioning today?
A significant surprise in Nonfarm Payrolls, particularly in wage growth.

Q2: Which pair is most sensitive to oil prices?
USD/CAD, due to Canada’s energy export exposure.

Q3: Is EUR/USD rally fundamentally supported?
Partially. It is driven more by USD weakness than strong Eurozone fundamentals.

Q4: Could GBP political uncertainty derail the rally?
Yes. Political instability combined with BoE dovish expectations increases downside vulnerability.

Q5: Which pair shows the cleanest technical structure?
USD/CAD on the downside and NZD/USD on the upside currently show the clearest directional bias.

Key Takeaways

• Broad USD softness dominates pre-NFP positioning.

• Weak US Retail Sales reinforced near-term dollar pressure.

• Oil strength supports CAD and weighs on USD/CAD.

• Political and policy risks limit aggressive sterling upside.

• The delayed Nonfarm Payrolls report is the decisive catalyst for near-term FX direction.