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Jobs Numbers to Impact Fed Stance

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May 7, 2014 By: , No Comments

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Forex markets saw a large amount of two-way activity last week.  But in the end, the US Dollar is still trading near its lowest levels of the yearagainst both the Euro and GBP.  This might come as a surprise to some, given the fact that most of the important economic data (with the exception of the GDP number) came out in ways that are positive for the Dollar.  Additionally, the geopolitical conflicts in Russia and in the Ukraine would have been thought by many to bring some safe haven buying in the greenback.

Historically, this is something that tends to happen when market uncertainty reaches elevated levels and this is certainly the case when we start to look at the Ukraine situation.  The potential disruptions to trade routes in things like energy materials could easily create problems for the world economy if a resolution is not reached soon.  But the safe haven tendencies that are normally expressed were seen much more in stock markets, rather than in forex markets.

So there was little benefit here for the US Dollar, except for the fact that the sell off this week might have been worse if there has not been external difficulties of this magnitude.  Since none of these factors were really helping the Dollar, it is looking as though there is little that can shield the currency from further weakness — at least until we reach the important psychological resistance levels that are seen overhead in the Euro and GBP.  These areas can be found at 1.70 in the GBP/USD and 1.40 in the EUR/USD.  These levels are really not that far off at this stage, and we could see a test of both of these regions as early as next week.

The Week Ahead in Forex Markets:  Shift Toward Sentiment Aligned Market Drivers

In the week ahead, forex traders will need to pay close attention to factors that drive sentiment rather than specific economic data releases.  The reason for this lies in the fact that most of the important releases were seen last week.  Key examples here could be seen in the FOMC policy meeting, and also in the GDP and Non Farm Payrolls numbers that came out of the US last week.  The GDP results missed badly to the downside, showing that the US economy grew at a rate of only 0.1%.

Most of the market was expecting a number that was much higher at 1.2%, and this downside miss will cause many analysts to now downwardly revise their growth projections for both the US and the world as a whole.  On the more positive side, monthly employment data was very strong at 288K new jobs for the month.  The unemployment rate was also much lower than expected so going into next week forex traders will need to watch how this affects Fed policy expectations in May.

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