Investors waiting on major US data and ECB meeting

Forex News and Events

NFPs no as important as before as recession fears grows (by Arnaud Masset)

This is it! The last job report before the much-awaited March FOMC meeting (March 16th) will be released today at GMT 13:30. The market is expecting a strong February job report, especially as Wednesday’s ADP came in above median forecast, printing at 240k, versus 190k. According to the latest survey, the US economy is expected to have created 195k private jobs during the second month of 2016; in January the NFPs came in at 151k.

However, we do not believe that this NFP report will have a strong impact on USD crosses as the broader economic picture does not allow any room for excess optimism. Indeed, the US economy has been sending mixed signals since January and even though data stopped to disappoint systematically, the market wants to see significant improvements before reloading long USD positions as trust needs to be rebuilt. Even the most hawkish Fed members have stopped giving overly optimistic speeches, instead becoming more cautious about the US outlook. More and more market participants are wondering if the US economy is on the edge of a recession or whether this is just a temporary setback (apparently the temporary setback has become seasonal since last year…). In our opinion, it is still too early to ring alarm bells.

Waiting for the ECB (by Peter Rosenstreich)

EURUSD continues to trade in thin volumes making price action choppy and directionless. Ahead of the ECB rate decision on 10th March, traders are increasingly cautious about Euro positioning. With crude prices dipping lower and further deterioration in Europe's economic outlook, the ECB will be forced to act. Against this backdrop we anticipate that the ECB will lower its inflation forecasts for 2016 from 1.0% to 0.5%, well below the 2% target. With the inflation outlook heading in the wrong direction, and a majority of ECB members demanding a proactive strategy, markets are anticipating more stimulus. Yet for traders, the exact make-up of the easing will define the near term direction of FX. Another important factor will be the disappointment felt by traders in December as monetary stimulus failed to live up to the hype. The lack of aggressive action sparked a sell-off in government bonds in Europe and US. We expect the ECB to cut the deposit rate by 10bp (to -50bp, below expectations for 12bp) and increase its monthly assets purchased by €10bn (to €70bn currently). Given the lack of liquidity it’s likely that the ECB will adjust the composition of QE to include ‘semi-public’ debt (50% or more owned by EU governments) in its purchase program but will limit the rating threshold. There is also the probably that the duration will be extended (however, not our baseline view). We do see scope for additional depo rate cuts yet the ECB will opt to keep its powder dry given the near-term event risk ahead (Brexit and Spanish’s general elections). Given the damaging effect the ECB negative rate policy is likely to have on banks in this high excess liquidity environment, we expect that the ECB will launch a multi-tiered system to protect at-risk participants. Should the result come in close to our baseline scenario we anticipate a rally in EURSD as the strategy is broadly priced into. Finally, this micro-tuning of ECB current policy indicates an exhaustion of monetary policy ideas, potentially a loftier driver of long-term FX pricing.

EUR/USD - Bullish surge

The Risk Today

Peter Rosenstreich

EUR/USD is consolidating after sharp break of minor resistance at 1.0905. The short-term technical structure still suggests a further bearish move. Hourly resistance lies at 1.0972 (intraday high). Hourly support can be located a 1.0937 (intraday base) then 1.0810 (29/01/2016 low). Expected to show continued weakness. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD has broken to the upside out of its horizontal range defined by the hourly support at 1.3836 (29/02/2016 low) and 1.4036 (26/02/2016 high). Monitor major resistance at 1.4409 (19/02/2016 high). Hourly support can be found at 1.4036 (26/02/2016 high & old horizontal resistance). The technical structure suggests further monitoring of the hourly resistance at 1.4168 (22/02/2016 high). The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY has thus far successfully tested its rising channel support at 113.88. However, a break of the hourly resistance at 114.56 is needed to invalidate the short-term bearish trend. Strong resistance is given at 114.91 (16/02/2016 high). Next support lies at 112.16 (01/03/2016 low). Expected to show continued strengthening. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF continues to weaken as can be seen by the break of the support area given by the horizontal base at 0.9950. An hourly support now lies at 0.9894 (03/03/2016 low), while a key support stands at 0.9847 (16/02/2016 low). Hourly resistance is located at 0.9950 (29/02/2016 low & old support). •In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: