Dollar Higher After Positive Jobs Data
Forex markets saw limited volatility in the early parts of the week, as there were key event risks that were directed toward the trading activityon Thursday and Friday. Because of this, there was little reason to establish sizable position in the early trading sessions. But the first macro indicator came on Wednesday, as the monthly ADP employment report showed a rise of 190K private sector job additions for the month. This stoked optimism for the Non Farm Payrolls report on Friday, as these data releases tend to have a high positive correlation with one another.
Because of this, we saw some initial gains in the US Dollar, as some traders started to position for a positive result in the much more important jobs number released on Friday. But before this happened, the monetary policy meeting at the European Central Bank reached its conclusion and the ultimate result was an opened door to continued stimulus programs. For these reasons, it will be crucial to continue watching Eurozone economic data in terms of how it is likely to affect the ECB’s policy stance going forward.
On balance, this is a negative for the Euro, as it will suggest additional money supply running through the system (along with stabilized or declining levels of demand). By extension, these moves will likely weigh on the British Pound and help to support the US Dollar. For Currency traders, this means that we are likely to see sustained declines in forex pairs like the EUR/USD and GBP/USD going forward. It also means that significant tops are in place at the recent highs.
The Week Ahead in Forex Markets: Prepare For More Slowdowns in Volatility
In the week ahead, forex traders will likely see a continued slowdown in general price volatility. Most of the major event risk from last week has already passed, and so traders will now be at a lack for directional information that can clearly guide bias going forward. For these reasons, forex markets are likely to see an extension of most of the trends that were seen last week.
On the macro side, the most remembered piece of information will be the March Non Farm Payrolls report, which showed a rise of 192K new jobs for the month. The numbers from February were also revised higher, so this paints a broadly positive backdrop for labor markets in the US. At the moment, the US Federal Reserve is far more concerned with labor market reports (more than manufacturing or inflation, for example).
So, there is nothing in these latest releases to change the market’s perception for how the Federal Reserve is likely to act in its tapering of QE stimulus programs. Currently, the Fed is the only major central bank that is actively pursuing a stimulus exit strategy, and this is likely to be the driving factor in forex markets for most of this new month.