• Strong NFP likely to keep Fed on path towards more tapering
• EUR/USD push higher cast in doubt
• GBP/USD still locked in narrow range
US dollar: After the stronger-than-expected US Non-farm payrolls release (especially as the market was leaning hard for a weak print), the market is pricing in a definite US Federal Reserve taper at the March 19 meeting amid more confidence that the Fed will wait for at least the March data cycle, and possibly even the April data cycle before expressing any concern on the economy (as it is fully invested in the view that the economy has been held back by weather, as Saxo's chief economist Steen Jakobsen discussed today.)
If the US economy has indeed been held back by weather, we should theoretically get especially strong "catch-up data" over the next two months. If we only get a very mild bounce in the data, it should raise concerns that the weather has been less of a factor and that real weakness is a risk further along in the spring — but then we're talking about June — forever in market terms.
So this waiting out the next round of data is too long term for the market at the moment. For now, the June 2015 Fed Funds future has lost three bps on today's employment report data points and 7 bps since the highs early this week. It is currently at the lowest since the end of January as the market is beginning to move the timing of the first Fed-rate hike to before the end of Q2 2015, making it much harder here at the end of this week than it was yesterday to argue that the US dollar will continue to crumble broadly from here.
A few chart thoughts:
Today's data point has induced broadbased whiplash in USD crosses — and may constitute a key reversal day if it heads even stronger into the close — it's too early to tell. But, certainly at minimum, the bar has been sharply raised for the USD bears here going into next week.
- EUR/USD: looks like we might end the week with complete uncertainty as it's an ugly candlestick for today that throws the upside push into doubt, but with no complete reversal. This would leave it for next week to see whether we find a full reversal (sub 1.3750). Still, if we close below 1.3800 already today, it would be easier to make the call that the reversal is already today on a dark cloud formation.
- GBP/USD: the range is holding for now and extends the uncertainty into next week. We need a 1.6800 break to the upside or 1.6650 at minimum to the downside to pick up further directional interest.
- USD/CHF: a potential bullish hammer shaping up today if we close well above 0.8800 - see chart below.
Chart: USD/CHF
This chart is like an upside-down EUR/USD with an EUR/CHF twist. With the rates aggressively higher on the day, EUR/CHF is confirming the recent rally and the USD is back stronger as well on the positive US data. This has made for an interesting bullish hammer candlestick on today's USD/CHF chart thus far, which looks particularly compelling if we close even higher today and because the close would come in higher than the previous lows from last Friday.
USD/CHF: Daily" title="USD/CHF: Daily" align="bottom" border="0" height="573" width="759">
Source: Saxo Bank
USD/CAD: potentially key reversal within the range that could set up 1.1200 break soon as Canada employment report disappointed.
USD/JPY: yesterday's break heartily confirmed with today's action. There is a possible top of the cycle test soon unless risk appetite can't stand the thought of higher rates (that particular headwind may not pressure just yet, but file it away for future reference).
NZD/USD: tantalising reversal potential hear near the top of the multi-month range, but will need Monday to confirm. Would look compelling if we cut below 0.8450 today.