Central Banks and Payrolls once again

Despite choppy price action all through this week, dollar is poised to close it with gains against all of its rivals. Disappointments triggered by weak US data were not enough to put majors in reverse mode, but it was the OPEC who saved the day for the greenback, announcing in its Thursday’s meeting they won’t change their oil production quota and sending the commodity to fresh 4-year lows. 

Anyway, we are heading into the last month of the year: winter holidays in the north hemisphere usually mean that, after the first week of Central Banks and US NFP and due profit taking to close books a few days afterwards, market will range bound until the first days of January 2015. But that does not mean we won’t have any more action: RBA, BOC, BOE, ECB, all of them will set their monthly economic policies, plus the US will release its employment figures to close the week next Friday. 

Next week action will start as soon as Sunday, with the Swiss Referendum on “Save Our Swiss Gold.” Basically, the proposal looks to increase the Central Bank’s gold holdings reserves from current 7% up to a 20%. Investors hold on their toes as if the “YES” wins, the metal will likely soar, whilst a winning “NO” will not only send it to multiyear lows, but also favor some dollar gains across the forex board.

As for the ECB, European ominous inflation readings these days suggests “something” should be done: German monthly inflation printed 0.0% erasing the positive mood earlier up ticking data generated over the country; Spain inflation went down to -0.5%, while EZ YoY readings remained at its lows of 0.3%. Mario Draghi has attended different events this week, and did not missed any opportunity to reaffirm that the Governing Council is “unanimous in its commitment to use other unconventional instruments” if current measures are not enough, triggering 50 pips slides in the EUR/USD every time. Market players are being fast when it comes to price in some easing around the corner; but what investors seem to be ignoring is that he also said in regards of current stimulus that “time is needed for the positive effects to fully materialize.” 

My take is that Super Mario will once again offer a strong jawboning on unity and further measures available, but do nothing: EUR reaction will then depend on how much the market believes him, and for how long: if at some point, saying first quarter of 2015, QE remains in blur, the EUR/USD may finally post a strong upward correction after months of decline. In the shorter term, any spike higher in the pair after ECB up to 1.2560, should only be seen as a selling opportunity. 

Soft US data this month, with consumer spending posting a modest gain in October and a measure of business spending plans falling for a second straight month, suggest some slowing in the pace of economic growth and pointing for US NFP readings on Friday may be not as bright as lately. Furthermore, weekly jobless claims rose last week first time since early September, although the underlying trend is consistent with steady growth in the labor market.

October reading missed expectations printing 214K but unemployment rate fell down to 5.8%:expected at 228K, it will take a reading around 240K and a steady unemployment rate to trigger a strong upward momentum in the greenback, yet another month of missed numbers or a reading below 200K, probably being the kick start of profit taking of dollar latest’s gains.