Central Banks still on the makes, US NFP next

This past week did not lacked entertainment, although it was quite soft as just “minor” Central Banks played the currencies’ war.  The Singapore Central Bank eased its currency policy announcing it would take measures to slow the appreciation of the Singapore dollar. The Denmark one cut its rate for third time in two weeks, whilst Russia cut its benchmark from 17% to 15%, just one month after a surprise hike from 10% to 17%. There was no official announcement coming from Switzerland, but the EUR/CHF spiking 100 pips in an hour, almost daily basis, should lift suspects they are somehow working on weakening CHF.

Data was quite soft in Europe, with inflation in the EZ and Germany taking another step into deflation. In the US, macroeconomic readings were far from bright, except when it came to confidence: Americans are overly optimistic, despite the first year meeting of the FED brought nothing new. 

The dollar continued its advance to multiyear highs against most rivals, with commodity currencies leading the slide, and EUR and JPY fighting back. But should be no surprise as both currencies in their crosses against the greenback had been largely oversold for months. At this point, seems more as some sort of consolidation/correction going on in both, in the middle of the dollar bullish trend. 

The worse and the best word these days around the world is not growth, but “inflation.” Deflationary pressures in Europe triggered QE which finally decided to inject easy money into the markets sending local share markets strongly up. Low inflation in the US is the milestone to overcome for the FED to start rising rates.  There won’t be much on that front among majors economies next week, but there will be plenty of fundamental data that will provide information of how consumption is doing, and therefore where inflation is heading too. Everything will be read in regards of inflation, or at least most of it.

Non Farm Payrolls

Being the first week of the month, the star will be as usual, US NFP report. Last Wednesday, the Federal Reserve statement showed the Central Bank is overly confident in strong jobs gains. According to their latest statement, “economic activity has been expanding at a solid pace,” while “labor conditions have improved further”, which means a solid reading next Friday will likely see the greenback resuming its bullish trend. Market expectations are of 230K new jobs added against 242 in December, and of a steady unemployment rate at 5.6%. The question here is if the dollar is able to continue advancing despite trading at multi year highs against most of its majors’ rivals, and being extremely overbought. The fact is that market does not needs much this days to run into the greenback, and the data released last month suggest unemployment shrunk further, pointing to an up beating number this month. Anything above 240K with a steady or better unemployment rate then, should be the excuse market needs to resume dollar’s buying.