2013 so far has made Forex traders happy. Most market participants insist that they require a market to move to make a good enough return. So far this year, this market has not disappointed. It has been able to supply that volatility. A three-cent move from the ‘single unit’ since the fiscal-cliff side step has given most participants ample opportunity to improve their returns. All of the ‘big’ dollar bullishness has occurred in only two days, and we have yet to digest any North American employment numbers. That comes this morning.
It’s a rare feat to see the ‘mighty’ dollar rise when global risk is been applied. The massive surge favoring the greenback this year has many in the market beginning to believe that we are in the midst of a potential decoupling of the currency from rising on “bad” news. For some, New-Year priorities have investors seemly shifting back into US assets, and not just equities either. Other participants continue to digest the ‘hawkish’ tone from yesterday’s FOMC minutes, which suggest that an early end to bond purchases may be on the cards.
The FOMC announced more asset purchases at their December 2012 meeting, but yesterday’s minutes revealed “some lingering worries about these actions.” Close to +50% of committee members expressed a point of view that QE could be scaled back or stopped during 2013. However, this is contingent upon a rebound in growth. One must remember that the FED’s growth forecasts have seemed to be “overly optimistic in recent times.” The mix of this year’s committee is certainly more ‘dovish’ than that of a year ago. This could imply that buying assets will remain near the top of the FED’s agenda for the whole year. However, December’s minutes certainly open a window of opportunity for change!
Will US payrolls be a surprise this morning? A significantly stronger-than-expected ADP employment change print yesterday has many rethinking their expectations. Goldman and Deutsche were quick to recalibrate their numbers. They are looking for a headline print close to +200k. It may be a tad aggressive, however, some are secretly hoping that this is the time that NFP looks towards third base. Median estimates remain around +150k for the headline, along with a similar print for private payrolls. A higher reading should to give the dollar the green light, and further extend a move higher in US yields. Yesterday’s FOMC minutes would support this nicely. Non-EUR supporters will be very happy in this situation, as would the Yen bears!
The US’s northerly neighbor Canada, may not fare so well on the job front this morning, well that’s what’s expected at least. Few anticipate a negative print for December despite consensus coming up with a very ‘small’ gain. Any further weakness in the headline print or unemployment rate can be added to the recent set of weak data points. This scenario would keep the IMF happy. Why? It would make it more difficult for the departing Governor Carney at the BoC to act out any of his committee’s hawkish policy guidelines. Because of Canada’s strong economic ties with the US, most ‘loonie’ players will take directions from NFP first before relying on Canadian fundamentals. In this situation, the loonie immediate impact is to fall foul to domestic negative headlines. However, its prudent that investors digest the bigger North American picture before going all in. For now, the loonie trades in a tight neutral range with near equal supporters and detractors. The key for investors is to focus on what is fair value.
EURO Crapshoot Is Opening Up Holes
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