- Dollar: Will we See the Same Level of Market Reaction to the NFPs as we Did the ECB Decision?
- Euro Surges after ECB President Trichet Remarks that an April Increase is “Possible”
- British Pound Borrows Rate Buoyancy from the Euro but Falls but Still Shows a Mixed Performance
- Swiss Franc Sees its Own Rate Forecast Jump after ECB Decision, Sinks Versus the Euro
- New Zealand Dollar Fails to Capitalize on Risk Appetite Trend, Rate Cut Outlook Too Heavy
Dollar: Will we See the Same Level of Market Reaction to the NFPs as we Did the ECB Decision?
The economic docket for the final trading session of the week is fitting. There is really only one significant round of scheduled event risk and that is the US labor data. Even if there were other indicators to fill the calendar out a little; the market would almost certainly have ignored the extraneous fodder to focus exclusively on the media-favorite non-farm payrolls. However, we must approach this release with caution. Speculation can significantly alter the reaction to the data and there are other exogenous factors that need to be accounted for. The first market aspect that needs to be accounted for is the anticipation for activity. Regardless of the outcome of the NFP report, there is a greater level of volatility expected through Friday’s session due in large part to the remarkable churn through the previous trading day. The ECB was responsible for leveraging the euro into a remarkable rally Thursday morning that forced a few meaningful breakouts when the central bank’s President indicated that the group was counting down to its first hike (more on that below). The sharp increase in turnover naturally translated into volatility for the shared currency’s most liquid counterpart. Furthermore, a remarkable rally in equities across the board would further weigh the safe haven greenback and set the bar for volatility even higher.
Moving forward, these elevated conditions will set expectations for an explosive reaction to any significant surprises in the employment data to unusually high levels. This is just one facet of the speculation that we will need to account for when trading around the monthly labor report. The next step is determining what outcome would qualify as a surprise. The Bloomberg consensus is calling for a 196,000-net increase in the February payrolls alongside a 200,000-person rise in private payrolls. Meeting the consensus would in itself be remarkable as the private payrolls figure (excluding government hiring) as it would mark the second largest jump in five years. What’s more, further support for a positive outcome is found in the encouraging performance of secondary indicators that have crossed the wires earlier this week. The employment component of the ISM’s manufacturing report hit a 38-year high while the figure for the service sector reading neared a five-year high; the ADP reading outperformed with a 217,000 print; and initial jobless claims has sunk to their lowest levels since May of 2008. Yet, with these intense focus on the headline report; it is more important this time around to account for the details as well. The unexpected drop in the January unemployment rate last month was in large part a by-product of a historic drop in participation as frustrated American’s left the labor force. Employment levels, earnings and other particulars of the broad range of data will be thoroughly processed.
Adding another layer of complication to this event is the notion that this indicator could play either to underlying risk appetite trends (which would establish a negative correlation) or to the perceived relative strength of the US dollar. Sentiment and the volatility that backs it are already elevated after the S&P 500’s rally yesterday; so this may create an inherent bias. On the other hand, with global interest rate speculation roused by the ECB’s notable shift and critical growth comparisons increasingly favoring the greenback; there is a good chance that this employment report could play directly to the currency. We will need to watch the data, the dollar, the S&P 500 and rate expectations to obtain the full picture.
Related:Discuss the Dollar in the DailyFX Forum,
Euro Surges after ECB President Trichet Remarks that an April Increase is “Possible”
After two years of consistent monetary policy, the ECB seems to finally be on the verge of making that inevitable shift back towards a hawkish regime. Heading into the central bank’s monetary policy decision, rate forecasts were pricing in the possibility of a first quarter-point hike sometime in the coming six months. However, even this heavy bias would account for the accelerated timetable that President Jean-Claude Trichet and crew seem to actually be on. While the rate decision itself wouldn’t offer anything beyond the now familiar hold; the statement from Trichet and his subsequent press conference seemed to clearly signal that the first rate hike would come in April. While his comment that an “increase in the next meeting is possible” may seem noncommittal; for the carefully-crafted and transparent language these officials use, this is tantamount to a guarantee. Through the short-term, confirmation that the euro will be the first to receive a yield boost (in a group that includes the FOMC, BoE and BoJ) will vindicate bulls and likely offer additional strength. On the other hand, we should also take note that the policymaker warned that this was not necessarily the start of a “series.” What’s more, a hawkish shift comes at a very inconvenient time for some EU members. High rates will further burden Greece and Ireland among others. Expect this concern to bleed through sooner rather than later.
British Pound Borrows Rate Buoyancy from the Euro but Falls but Still Shows a Mixed Performance
Looking at the fundamental developments behind the sterling; the service sector activity report printed weaker than expected, comparisons between oil prices and interest rate pressures eased with crude’s price and BoE Deputy Governor Bean delivered a less than hawkish assessment of the current conditions in the UK. Despite that round of questionable events, though, the 12-month rate forecast for the Bank of England jumped nearly 12 basis points to bring the figure to 87 bps. Rate speculation has been the pound’s speculation foundation; so this could have acted as a launching ground for the sterling. Instead, GBPUSD slid through the session – which is even more unusual given risk trends.
Swiss Franc Sees its Own Rate Forecast Jump after ECB Decision, Sinks Versus the Euro
There are two unique reactions from the franc to the hawkish ECB rate event. First, the historical correlation between the policy efforts of the European and Swiss central banks would bolster the SNB’s 12-month interest rate forecast (12 bps) to 50 basis points. However, this was not a bullish enough shift to keep the Swiss currency buoyant. The more remarkable effect of this interest rate shift is that there is suddenly greater return to offset perceived risk in the euro-region which temporarily reverses the flow of capital towards the safe haven Swissie.
New Zealand Dollar Fails to Capitalize on Risk Appetite Trend, Rate Cut Outlook Too Heavy
It was hard to miss the level of bullish momentum that had developed in the capital markets as Thursday’s session wore on. Under normal circumstances, we would expect this swell in investor sentiment to route funds to high yielding currencies; but that didn’t seem to be the case for the kiwi dollar. The currency saw a hiccup in volatility; but quickly resumed its decline into the end of the day. Risk appetite doesn’t seem robust enough to compensate for the fact that a RBNZ rate cut seems guaranteed next week.
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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
GBP |
New Car Registrations (YoY) (FEB) |
-11.5% |
Another indicator of credit and consumer’s expectations for their own financial situation. |
||
|
CHF |
8:00 |
Foreign Currency Reserves |
207.9B |
Foreign currency reserves represent a measure of inflation, currency manipulation and shift in policy amongst other things. |
|
|
USD |
13:30 |
Change in Non-farm Payrolls (FEB) |
179K |
36K |
The top scheduled event risk for the week, the market will be more critical of the details after January’s jobless rate improved thanks to a sharp drop in labor market participation. |
|
USD |
13:30 |
Change in Private Payrolls |
179K |
50K |
|
|
USD |
13:30 |
Change in Manufacturing Payrolls (FEB) |
33K |
49K |
|
|
USD |
13:30 |
Unemployment Rate (FEB) |
9.1% |
9.0% |
|
|
USD |
13:30 |
Average Hourly Earnings (MoM) |
0.2% |
0.4% |
|
|
USD |
13:30 |
Average Hourly Earnings (YoY) |
1.9% |
1.9% |
|
|
USD |
13:30 |
Average Weekly Hours All Employees |
34.3 |
34.2 |
|
|
USD |
15:00 |
Factory Orders (JAN) |
2.2% |
0.2% |
Factory orders expected to rise sharply in January, falling in line with the ISM manufacturing report. |
|
15:00 |
Ivey Purchasing Managers Index (FEB) |
50 |
41.4 |
Business activity for Canada is an important reading to solidifying growth expectations and the rate outlook. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
– |
-:- |
– |
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE – 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist 2 |
1.4280 |
1.6420 |
89.00 |
1.0000 |
1.0275 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4025 |
1.6300 |
86.00 |
0.9775 |
1.0000 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3969 |
1.6279 |
82.33 |
0.9315 |
0.9720 |
1.0158 |
0.7412 |
115.00 |
134.02 |
|
Support 1 |
1.3700 |
1.5750 |
80.00 |
0.9200 |
0.9700 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3450 |
1.5315 |
75.00 |
0.9000 |
0.9500 |
0.9375 |
0.6585 |
100.00 |
119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
|
Currency |
USD/MXN |
USD/TRY |
USD/ZAR |
USD/HKD |
USD/SGD |
Currency |
USD/SEK |
USD/DKK |
USD/NOK |
|
Resist 2 |
13.8500 |
1.6575 |
7.4025 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
11.9958 |
1.5974 |
6.9143 |
7.7879 |
1.2678 |
Spot |
6.3171 |
5.3378 |
5.5568 |
|
Support 1 |
11.7200 |
1.5300 |
6.7600 |
7.7490 |
1.2700 |
Support 1 |
6.2850 |
5.2625 |
5.5550 |
|
Support 2 |
11.4400 |
1.4725 |
6.5575 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5125 |
INTRA-DAY PIVOT POINTS 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist 2 |
1.4066 |
1.6369 |
82.98 |
0.9387 |
0.9765 |
1.0221 |
0.7510 |
116.27 |
134.95 |
|
Resist 1 |
1.4018 |
1.6324 |
82.66 |
0.9351 |
0.9743 |
1.0190 |
0.7461 |
115.63 |
134.49 |
|
Pivot |
1.3925 |
1.6289 |
82.19 |
0.9292 |
0.9730 |
1.0157 |
0.7425 |
114.37 |
133.71 |
|
Support 1 |
1.3877 |
1.6244 |
81.87 |
0.9256 |
0.9708 |
1.0126 |
0.7376 |
113.73 |
133.25 |
|
Support 2 |
1.3784 |
1.6209 |
81.40 |
0.9197 |
0.9695 |
1.0093 |
0.7340 |
112.47 |
132.47 |
INTRA-DAY PROBABILITY BANDS 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist. 3 |
1.4133 |
1.6437 |
83.20 |
0.9425 |
0.9808 |
1.0283 |
0.7509 |
116.41 |
135.64 |
|
Resist. 2 |
1.4092 |
1.6398 |
82.98 |
0.9398 |
0.9786 |
1.0252 |
0.7485 |
116.06 |
135.24 |
|
Resist. 1 |
1.4051 |
1.6358 |
82.76 |
0.9370 |
0.9764 |
1.0220 |
0.7461 |
115.71 |
134.83 |
|
Spot |
1.3969 |
1.6279 |
82.33 |
0.9315 |
0.9720 |
1.0158 |
0.7412 |
115.00 |
134.02 |
|
Support 1 |
1.3887 |
1.6200 |
81.90 |
0.9260 |
0.9676 |
1.0096 |
0.7363 |
114.29 |
133.21 |
|
Support 2 |
1.3846 |
1.6160 |
81.68 |
0.9232 |
0.9654 |
1.0064 |
0.7339 |
113.94 |
132.80 |
|
Support 3 |
1.3805 |
1.6121 |
81.46 |
0.9205 |
0.9632 |
1.0033 |
0.7315 |
113.59 |
132.40 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com
