Friday, March 8, 2019

The Dollar Takes Its Turn Under The Spotlights Today After The Euro Plunged

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

After a day that was all about the Euro, it's the Dollar's turn to dominate the price action today ahead of the Non-Farm Payrolls report from the US. The US currency goes into this important event broadly well- whether it will come out of it with more momentum or not depends on the way the figures will print. The Euro plummeted yesterday after the ECB announced another round of TLTRO loans in an attempt to keep growth in the Eurozone supported as much as possible in the face of worrying geopolitical risks. Equities fell again, Gold seems to be finding some support and Oil remained unchanged.

The Dollar will be the main focus of the day for investors at the end of this week. The Non-Farm Payrolls report will culminate a rather busy week for the markets, but we think there's still room for an interesting turn of events today. The greenback gained yesterday against the Euro and the Pound but overnight it saw losses versus the Yen as Japanese data beat expectations. Whether the US currency will be able to end the week on a positive note against its peers depends on the two key components of the NFP report: the number of jobs added in the US economy last month and the rate of wage growth.

Starting with the headline number of jobs added, analysts are expecting a printing of 180k for February. This would be significantly lower compared to the previous month's reading but it would still portrait a robust labor market, which supports the broader domestic economy's outlook. Should the number come in near or above the 180k mark - and we don't see a disappointing revision of January's data - it will be considered a positive for the Dollar. At the same time though, the Average Hourly Earnings is the other key component of today's report, and maybe more important than the amount of jobs added.

Wage growth is of paramount importance for the domestic economy, as higher wages drive increased spending and more investments in all sectors of the economy. Today's reading is expected to come in at 0.3%, significantly higher than the 0.1% level of last month. If the actual printing meets expectations, alongside a positive number of jobs added, then this combination will be treated as a strongly bullish NFP report and it will propel the Dollar to new highs. On the flip side, it would take a very ugly set of data today for the Dollar to disappoint: maybe a number close to 100k jobs added and steady wage growth at 0.1%, in which case the greenback will be aggressively sold off.

Dollar/Yen is trading around 111 after the release of the Japanese GDP and Household Spending figures that drove prices in favor of the Yen. A strong NFP report however will allow the greenback to recover and prices could push towards 111.50-60 until the close while a miss will take the Yen to 110.20 versus the Dollar. The Euro dropped to 1.12 after the ECB announced a new round of TLTROs amid a slowing Eurozone economy and today a strong NFP reading will clear the path towards 1.11, while a miss will only lift the Euro towards 1.1280. Finally, the Pound is found trading at 1.31 this morning and depending on a bullish or bearish NFP report we may see 1.30 or 1.3180 by the end of the day.

Gold is trying to build some momentum to drive higher this morning but its price action clearly hinges on the way the Dollar trades post-NFPs. The decline over the recent weeks has been significant and a correction higher would be natural at some point but again this all depends on the NFPs. A strong printing will cancel any attempts for the yellow metal to edge higher and will instead put the $1,278 level to the test, while a miss will support the upside with the $1,304 area coming into sight.

Global equities are trading lower this morning, on the back of a bearish session yesterday and negative sentiment coming from the Asian markets. A sell rating coming from one of China's biggest brokerages shocked investors, suggesting that the central government may favor a slowdown in the recent rally. In any case, worries about slowing global growth still linger and investors are now clinging on any negative headline. Today's NFP report could go a long way in alleviating these worries if it prints in a positive manner, otherwise more losses could be seen in equities until the end of the week.

MARKET EVENTS TO WATCH

  • US Non-farm Payrolls - 5.30pm
  • US Average Hourly Earnings - 5.30pm

All times are GMT +4.