The US dollar wrapped up last week in solid shape despite stumbling a bit on Friday after December's jobs report delivered its usual mixed bag of signals. Non-farm payrolls grew by a meager 50,000—well short of the 66,000 consensus—which sounds pretty weak on its face. But here's the thing: the unemployment rate unexpectedly dropped to 4.4%, and wage growth stayed steady. The takeaway? The labor market isn't exactly screaming for the Federal Reserve to rush in with rate cuts.

So rather than marking a turning point for the greenback, the data just prompted some tactical repositioning. The 10-year Treasury yield continued wrestling with that stubborn 4.2% resistance level, unable to punch through convincingly.

While US data kept markets guessing, the Canadian dollar had a genuinely rough week and ended up as the worst performer among major currencies. Sure, headline employment numbers looked decent, but the unemployment rate leaping to 6.8% told a different story—one of growing mismatch between available workers and actual hiring. That's not the kind of divergence you want to see.

Over in Europe, things weren't much cheerier. The euro and Swiss franc stayed under pressure as Eurozone retail sales managed only marginal improvement. Not exactly the data to shift the narrative away from sluggish regional growth. On the brighter side, the Australian dollar and sterling held their ground reasonably well, positioning themselves as the main contenders challenging the dollar's dominance.

Outside the pure economic data, geopolitical tensions in South America and a tech-driven equity rally—boosted by major announcements at the CES event—gave risk-sensitive assets a helpful push. Still, the real action in forex markets centered on traders recalibrating their interest rate expectations across different central banks.

China's inflation data provided a selective bright spot, though the full-year flat CPI reading kept deflationary concerns alive across the broader Asia-Pacific region.

Currency Pairs to Watch

AUD/CAD: Testing Support After Breakout

Earlier this year, AUD/CAD broke out of a multi-month consolidation pattern that had been in place since late September. Friday brought a pullback to the previous resistance point at 0.92580, but that level held firm as support.

As long as that floor remains intact, the more probable scenario is upward expansion, with strong resistance waiting at 0.95450. The failed breakdown attempt suggests the breakout might have legs after all.

GBP/SGD: Losing Steam

The pound kicked off the year trying to break through the important 1.73800 level against the Singapore dollar but couldn't seal the deal. Since that failed attempt, momentum has been fading, culminating in a sharp drop by week's end.

If Friday's high continues to cap the upside, the path of least resistance points downward, particularly toward testing the 1.71100 support zone. The pound's early-year confidence seems to be evaporating.

What's Coming This Week

The focus shifts from labor markets to inflation. December's Consumer Price Index and Producer Price Index reports will offer crucial insights into whether the US dollar can reclaim and extend its momentum. These aren't just routine data releases—they'll directly inform Fed policy expectations heading into the next meeting.

Earnings season also kicks off this week, traditionally led by major US banks like JPMorgan and Bank of America. Their results and commentary typically set the tone for broader risk sentiment, so markets will be listening carefully.

Traders will also parse through a parade of Federal Reserve speakers and the release of the Beige Book, hunting for any hints about the central bank's appetite for a rate cut later this month. Given how sensitive currency markets have become to rate expectations, even subtle shifts in tone could move things around.

The dollar has momentum, but this week's data will determine if it's sustainable or just a head fake.