Forex Major Currencies Outlook (March 8, 2013)

USD: Bullish

The U.S. dollar lost ground to the euro and the pound during yesterday’s trading as both European currencies staged relief rallies when their respective central banks decided to make no changes to current monetary policies. However, all that could reverse today with the U.S. non-farm payrolls report on tap. The report could print a 162,000 increase in hiring for the month of February and this should keep the unemployment rate steady at 7.9%. A stronger than expected figure could provide support for the U.S. dollar since the Fed is closely monitoring progress in the labor market in considering when to taper off their asset purchases. A weaker than expected reading, on the other hand, might result in a dollar selloff as this would suggest that the U.S. economy will have trouble staying afloat once the job cuts from the sequestration kick in.

EUR: Bullish

The ECB decided to keep interest rates unchanged and their ongoing easing programs at their current levels as Governor Mario Draghi highlighted the progress in the euro zone. He did point out some downside risks to growth, along with the political uncertainty in Italy, but mentioned that the central bank isn’t committed to rate changes at the moment. This relatively upbeat statement was enough to push EUR/USD above the 1.3000 handle and back to the 1.3100 area, which is acting as resistance for now. There are no other economic events scheduled in the euro zone today as euro pairs could continue to trade on the positive sentiment resulting from yesterday’s ECB decision.

GBP: Bearish

Many were surprised to hear that the Bank of England didn’t make any additional asset purchases during their latest interest rate decision as BOE Governor Mervyn King previously voted to implement further stimulus. The BOE’s interest rate was also kept steady at 0.5%. This was enough to push GBP/USD back above the 1.5000 major psychological level to a high of 1.5080, but the pair was unable to sustain its rally. This reveals that market participants still believe that the lack of easing this time just increases the odds of further easing next time.

Commodity Currencies (AUD, NZD, CAD): Neutral

The Australian dollar and New Zealand dollar moved sideways during yesterday’s trading sessions as there were no major reports from Australia and New Zealand. Canada printed mixed economic reports as building permits came in below expectations while their trade balance showed a smaller than expected deficit. There are no major reports due from these commodity-dependent economies today as AUD/USD, USD/CAD, and NZD/USD could take their cues from the U.S. NFP release.

JPY: Bearish

USD/JPY just made a strong break above the 94.00 handle and seems to be making a beeline for the 95.00 mark, which could act as resistance. However, the U.S. NFP is set for release today and a stronger than expected figure could push the dollar up against the yen. Improved risk sentiment, particularly for the European currencies, is also weighing on the lower-yielding Japanese yen for now.

CHF: Bullish

The Swiss foreign currency reserves report released yesterday revealed that the SNB has already spent ten times as much as it did last year on keeping their franc peg. The total amount of foreign currency reserves now amounts to nearly 75% of their GDP, prompting market participants to think that the central bank might no longer be able to afford to keep the franc’s value down later on. This triggered a franc rally as sellers closed off their short Swissy positions.

By Kate Curtis from Trader’s Way