Dollar Index Strengthens, Commodity Currencies Edge Higher, and Eyes Turn to Key Economic Events

Dollar Index Holds Firm Around 105 PointsThe dollar index continues to consolidate around 105 points, reaching levels not seen since mid-March of this year. Meanwhile, EURUSD briefly dipped below the 1.07 level, but the lack of significant news failed to capture buyers' interest. GBPUSD, on the other hand, remains range-bound between 1.2450 and 1.25 for the third consecutive day. Some activity has been observed in commodity currencies, notably with NZDUSD gaining around half a percent. However, this upward movement resembles more of a technical rebound near a key medium-term support level, the lower boundary of the bearish channel:Canadian Dollar Strengthens on Robust Jobs ReportIn contrast, the Canadian dollar has strengthened against the dollar by approximately half a percent following the release of the employment report. Job growth more than doubled expectations and surpassed the forecasted unemployment rate, which dropped to 5.5% from an anticipated 5.6%. Consequently, the likelihood of a hawkish decision by the Bank of Canada at the upcoming meeting has increased. Expectations of a higher interest rate (or a prolonged period of elevated rates) have attracted buyers. USDCAD has reversed course near the resistance line that has been forming by medium-term bullish extremes since late last year:Optimism Surrounds Commodity CurrenciesPositive momentum in commodity currencies has been fueled by a favorable trend in the oil market, with prices surging by approximately 1%. Market participants continue to assess the potential implications of OPEC's decision to extend voluntary oil production constraints. It appears that market equilibrium is shifting towards higher levels relative to current ones, as macroeconomic signals, especially concerning the U.S. economy, show resilience despite elevated interest rates. Credit for this week's positive sentiment largely goes to two releases: the ISM report on U.S. service sector activity and initial jobless claims. According to the ISM report, service sector activity unexpectedly increased compared to the previous month, and at an accelerated pace. This development took the markets by surprise. An even more significant surprise was the change in the inflation component of this index, as the corresponding sub-index began rising again, surpassing 58 points (compared to 56 points the previous month). Initial jobless claims increased at an even slower pace than previously, totaling 216K compared to 228K the previous week and significantly below the forecast of 234K.Upcoming Events: U.S. Inflation and ECB MeetingNext week, we anticipate the release of the U.S. inflation report on Wednesday, as well as the European Central Bank (ECB) meeting on Thursday. It is expected that U.S. prices for August will show a 0.5% increase, up from 0.2% in July. While the ECB is expected to leave interest rates unchanged, recent remarks by officials hint at the possibility that the policy tightening cycle may not be over. Hence, the focus will be on the stance of the Governing Council and ECB President Christine Lagarde regarding future actions in the two upcoming meetings, particularly any hints of rate hikes and how they will be communicated to the public.