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Market looks to US jobs data for indications of economic recovery

04 March, 2014

The market opened Monday under a cloud of risk aversion with the ongoing Ukraine and Russia tensions and uncertainty depressing the market. Investors shifted their focus to safe haven assets, such as gold and the Japanese yen; the latter also benefitting from carry trade opportunists and strengthening to a three day high as a result. The risk aversion later began to ease overnight on Monday into Tuesday morning’s trade with safe haven assets weakening as investors turned their attention to the week’s data announcements, especially Friday’s Non-Farm Payrolls (NFP) jobs data from the US. The forecast is for a positive change of 159,000 jobs, compared to last month’s 175,000, and if the figure is much lower than the forecast it could spur Federal Reserve Chairwoman Janet Yellen to reconsider her stimulus tapering program. Yellen has consistently stated that the tapering program will continue unchanged, but as the NFP jobs data is considered the most accurate reflection of the health of the US economy, if the data is disappointing Yellen will be forced to reassess the Fed’s strategy.

Investors are also in for an exciting week with four central bank interest rate announcements – from the Reserve Bank of Australia (RBA), the Bank of Canada (BoC), the Bank of England (BoE), and the European Central Bank (ECB). The RBA kicked off proceedings on Tuesday by announcing no change to the record low interest rate level of 2.5%, with RBA Governor Stevens explaining that they believe they have delivered enough stimulus from the previous interest rate cuts to allow growth to strengthen slowly over time. The AUD barely reacted to this news, with AUD/USD trading consistently around 0.8941 in the wake of the announcement. AUD/USD pivot point is 0.8920, with resistance levels at 0.8949, 0.8975 and 0.9004; and support levels at 0.8894, 0.8865 and 0.8839.

Interest rate announcements from the BoC on Wednesday and BoE on Thursday are expected to remain unchanged, however the optimism around the UK’s recovery was slightly dampened by Tuesday’s UK Construction PMI data that revealed construction activity expanded at a slower rate in February than was forecast. The February reading was just 62.6, down from January’s reading of 64.6 and even lower than the forecasted 63.0. Volatility is expected for GBP/USD around Thursday’s interest rate announcement and during the press conference delivered by BoE Governor Carney. The GBP/USD pivot point is 1.6690, with resistance levels at 1.6726, 1.6787, 1.6823; and supports at 1.6629, 1.6593 and 1.6532.

There has been substantial talk in the market of the ECB cutting interest rates even lower this month than the current record 0.25% level, but the latest Eurozone inflation figures announced last Friday provided a much-needed boost in optimism for the single currency. The Eurozone CPI remained unchanged at 0.8%, above the 0.7% forecast, which was a bullish signal for the euro and saw EUR/USD rally and break above the key 1.3800 level. ECB President Draghi will no doubt be cheered with this news and the pressure for him to take further action to support the Eurozone recovery may be somewhat reduced or at least delayed for now. EUR/USD is now trading around 1.3756, with the pivot point at 1.3752, resistance levels at 1.3778, 1.3819 and 1.3845 and supports at 1.3711, 1.3685 and 1.3644.

After starting the week on a high on the back of risk aversion and interest in the carry trade, the yen has subsequently declined with USD/JPY now trading around 101.77. Bank of Japan Governor Kuroda spoke out in Parliament on Tuesday saying there was momentum boosting the yen carry trade, and ongoing uncertainty around Ukraine is likely to spur further investments in the carry trade in the near future. The USD/JPY pivot point is 101.39, with resistance levels at 101.58, 101.75 and 101.94 and supports at 101.22, 101.03 and 100.87.

What to Watch this Week: The main focus this week is Friday’s US jobs data announcement where analysts expect to see volatility in USD pairs. Additionally, some volatility is expected on Wednesday during the BoE and ECB interest rate announcements, particularly for GBP/USD, and also EUR/USD and EUR/GBP.

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