From the first sight, Friday’s rapid weakening of euro after weak American statistics looks strange. Still, it is worth recalling that euro is still a funding currency. Weak American statistics give hope that the Fed will take a pause in monetary policy tightening and leave interest rates unchanged in March. It increases interest in risky assets, what was reflected in sharp growth of stock indices on Friday. Accordingly, euro was put under blow. For Japanese yen increase of interest in risk was also aggravated by the Bank of Japan decision on decrease of interest rates. It is not by accident that trade currencies showed more stability, they were supported by energy prices. In general, dollar has stood aside for more than two months.
Such state of the exchange market is likely to retain this week too. Almost every currency will have own drivers, currencies’ correlation is still very low. Weak statistics from the U.S.A. will not necessarily provoke general decrease of dollar. This week the report on labor market will become the main event in the U.S.A. However, rollback often follows strong data on new work places. Therefore, this time it is worth expecting nonfarms in the range of 200K. Everything below this range will be interpreted as a weakness. Herewith American statistics are well represented this week – ISM business activity, production orders, and foreign trade. We presume that dollar’s dynamics will be unstable. Herewith, in local terms currencies will mainly orient at local statistics. This week the Eurozone will publish final indices of PMI business activity, unemployment, retail sales, production orders in Germany, in addition, Draghi’s speech is expected. It can’t be forecasts are weak, but there is little optimism, growth is almost invisible. Now euro’s dynamics depend more on stock market’s dynamics rather than on European statistics. That’s why pound shows active reaction to “his” news. There is PMI business activity, the Bank of England session on monetary policy, the quarter report, Carney’s speech this week. Pound has not felt the bottom yet, there are chances for renewal of annual minimums. Considering local events, the RBA decision on monetary policy and unemployment of New Zealand and Canada are of most interest.
The first workday of new month has started inactively, though PMI business activities were published in China. During the day the similar data will be released in several other countries. In the Eurozone there are already final production PMI, they usually have minimal influence on market dynamics. Still, it can be added by expected speech of Mario Draghi, if he covers the issue of additional stimulation of economy. British production PMI is of more interest – pound often reacts actively to this indicator. Although the indicator is above 50 points, still it has been decreased for last two months, the forecast also points at further fall. If the indicator is worse than predicted, then it can be painful for pound. Today American production ISM is likely to become the most expected indicator. The forecast points at slight growth, the indicator itself has been below 50 points for two months. We prefer not to predict market reaction – though it is good for dollar in the long term, but short-term reaction of the market can become an obstacle for its growth.
Our current cautious attitude towards EURUSD pair was reasonable against the background of Friday’s reaction of the market to weak GDP in the U.S.A. – it was quite unexpected. Now we don’t see conditions to use this instrument in our trading. We continue watching Loonie and looking for opportunities to buy the pair. For today our plans stay unchanged – we will buy below 1.3900.
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