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Market Direction to be Dictated by ECB, NFPs

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March 3, 2014 By: , No Comments

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Forex markets saw some reductions in price volatility last week as there was a dearth of economic data that could be used to generate a significant directional bias.  This will likely change next week, however, as there will be a few important event risks that should provide guidance for those looking to establish new forex positions.  For Euro traders, the main event will be the monetary policy meeting at the European Central Bank (ECB) and while there is no real expectation for a change in interest rate, there is still the potential for fireworks.

Forex traders will need to watch for language that shows the level of confidence that the ECB has in the regional economy.  There has been commentary at recent meetings which suggested that the region has not fully recovered from the debt crisis that was so well publicized just a few years ago.  So, it will be most important for traders to see whether or not there are any major changes in this language.  Expect any mentions of problematic inflation numbers (at the consumer level) to generate fresh rallies in the Euro, and send the EUR/USD back above the 1.38 mark.

The Week Ahead in Forex Markets:  NFPs to Generate Volatility Once again

In the week ahead, we will almost certainly see volatility reversals relative to what was seen last week.  If the critical ECB meeting was not enough to drive market bias, we will also have the monthly Non Farm Payrolls figure from the US.  This will likely mean that we see a wild trading session on Friday if the ultimate result shows any real deviation from the market’s initial expectations.  At the moment, these estimates are still relatively conservative, which is not entirely surprising given the large miss that was seen in the January numbers.

Early surveys show a consensus projections somewhere in the 150,000 region, so we will need to see something well above this number in order to see substantive rallies in the US Dollar.  There is some potential for this to happen, however, as we have seen some large swings in the US employment numbers over the last few quarters.  Of course, the January numbers were weaker and this could also be an indication that we are seeing a broader trend shift in the underlying labor market data.

In all, these will be the two main events for forex markets next week.  The event risk is skewed toward the latter part of the week, however, so what we might see is slower market activity in the early sessions.  This should be followed by enhanced volatility in the latter part of the week, so plan your trading accordingly and make sure stops are in place if you have open positions prior to the ECB outcome or the NFP release.

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