January’s US employment report to steal the spotlight

The USD was on the rise yesterday against its counterparts as the EUR and GBP tended to weaken allowing the greenback to shine. BoE as was widely expected hiked rates by 50 basis points raising the interest rate from 3.50% to 4.00%. The bank in its mentioned that “UK domestic inflationary pressures have been firmer than expected” yet also noted that “Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year”. It was characteristic that BoE Governor Andrew Bailey stated in his press conference following the decision that the bank sees the first signs that inflation has turned a corner. The decision was reached by a 7-2 majority and also we note that the bank’s hint that the bank rate may be nearing its peak may have weakened the pound. Also ECB as was widely expected hiked rates by 50 basis points. In its , the bank issued a forward guidance, setting the pace for the next rate hike as it stated that “the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March”, yet subsequent rate hikes are to be re-examined. Overall there seemed to be little if any hawkish surprises for the market as the bank stuck to the script of the market’s expectations, allowing for the common currency to dip against the USD, especially during Lagarde’s press conference later on.

Today market attention turns to the release of the US employment report for January and forecasts are for the NFP figure to drop to 185k if compared to December’s 223k, the unemployment rate to tick up to 3.6% and the average earnings growth rate to slow down to 4.3% yoy if compared to December’s 4.6% yoy. Overall given the retreat of the indicators which seem to be aligning in pointing towards a slack building up in the US employment market, should the actual rates and figures meet their respective forecasts or be even worst we may see the USD retreating. On the other hand though, the US employment market seems to remain tight, despite the tick up of the unemployment rate and thus poses no problem to the monetary policy tightening intentions of the Fed which may ease the hit on the USD. Please note that the release may increase volatility substantially in the FX market and have ripple effects in other markets as well, like the US stock market and gold, so a high degree of caution is advisable.

EUR/USD dropped yesterday breaking the 1.1000 (R1) support line now turned to resistance. The pair seems to show some signs of stabilization hence we tend to maintain a bias for a sideways motion, yet bearish tendencies seem to be still present. Should the bears actually retake charge of the pair’s direction, we may see it breaking the 1.0855 (S1) support line and aim for the 1.0715 (S2) level. Should the bulls take the reins, EUR/USD may break the 1.1000 (R1) line and aim for the 1.1180 (R2) resistance level.

GBP/USD dropped yesterday breaking the 1.2270 (R1) support line, now turned to resistance. We tend to maintain a bearish outlook for the pair as RSI indicator has reached the reading of 30, implying a strong bearish sentiment in the market. Should the bears maintain control over cable’s direction, we may see GBP/USD breaking the 1.2115 (S1) support line and aim for the 1.1925 (S2 )support level. Should a buying interest be expressed, we may see GBP/USD reversing course, breaking the 1.2270 (R1) resistance line and aim for the 1.2465 (R2) resistance level.

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Today in the European session, we note the release of Turkey’s CPI rates for January and UK’s final services PMI figure for the same month, while on the monetary front, we note that BoE’s chief economist Hugh Pill is scheduled to speak. In the American session, we note that besides the US employment report for January, we also get the ISM non-manufacturing PMI figure for January. During Monday’s Asian session, we get Australia’s retail trade growth rate for Q4.