Central Banks and US NFP back in the spotlight

Month end leaves a quite interesting fundamental picture ahead of what’s usually the most active data week. The most relevant game changers these last days had been Janet Yellen and EU CPI: first, the leader of the FED changed some the wording on tapering, suggesting more negative data should be a good reason to pause the scheduled $10B tapering plan. Data coming from the US has been mixed but mostly weak, with GDP falling down to 2.4%, which should signal more dollar weakness for the days ahead. Then, EU inflation surprised to the upside, rising mildly to 0.8%, but at least enough to a bit away fears of deflation, at least till next month. 

For the days to come, Central Bank and their actions will gather the attention, along with US employment figures next Friday, which would be key for greenback and tapering future. 

GBP and BOE Meeting, March 6th 

• Current 0.5% Expected 0.5%
• Rate rise, hawkish stance: GBP Bullish
• Rate cut, dovish stance: GBP Bearish
• Key pairs to watch: GBP/USD, GBP/JPY, EUR/GBP

As usual, there’s not much to expect from the BOE this month, as the Central Bank has made it clear it’s in no rush to change its economic policy, or to raise rates this year. But market players have been pricing in a soon to come rate hike based on economic improvements, mostly expecting action there for the first half of 2015. If somehow Carney decides to act, most likely by reducing some the APP, Pound will likely accelerate strongly up, particularly against safe havens dollar and yen. 

EUR and ECB Meeting, March 6th

• Current 0.25%  - Expected 0.25%
• Rate rise, hawkish stance: EUR Bullish
• Rate cut, dovish stance: EUR Bearish
• Key pairs to watch: EUR/USD, USD/JPY

Over the past few months, market speculated on the possibility of the ECB turning rates to negative particularly for deposit, as a measure to stimulate economy. But the months go by and the Central Bank avoids the move, leaving market players a bit tired of speculating on it. Despite latest YoY inflation reading came out slightly above previous one, at 0.8%, the fact is that risk of deflation is far from totally subdued, but good news are that the Central Bank is well aware of it. Of course, the economy needs more stimulus, but seems Mr. Draghi is not willing to act just yet. The on hold stance usually gives the EUR a boost, albeit this time may be different: strength in the common currency is now coming more from dollar weakness, and this Friday final break higher seems pretty relevant for the destiny of the pair.  If the Central Bank stays on hold, market will likely wait for US employment figures on Friday to determinate the pair’s direction.

Market talks over the last few days pointed towards the possibility of the ECB decided to join the QE path, but I do believe that latest inflation positive reading has been enough to diminishing such chances, at least during this month. However, if Draghi just mentions it as possible, the EUR will likely turn strongly down against most rivals.

USD and NFP, March 7th 

• Jobs creation: Current: 113K –Expected 160K
• Unemployment rate: Current 6.6% - Expected 6.6% 
• Above expected: USD Bullish
• Below expected: USD Bearish
• Key pairs to watch: EUR/USD, USD/JPY, GBP/USD, AUD/USD

Two months in a row of disappointing employment numbers in the US had not been enough to take FED out of $10B per month tapering scheme. Would a third negative reading do the honors? I do believe so: if this month the reading is of 120K or below market players will run to price it in sending dollar down across the board. Unemployment rate may remain at current 6.6% and I don't see how it could decrease from current levels, considering the weak employment creation. Anything below 110K should be extremely negative for the greenback and build up a case for no tapering in March. On the other hand, anything above 150K should give the greenback a boost, at least in the short term.