Forex Friday: NFP, GOLD, Guppy and Bitcoin
Welcome to another edition of Forex Friday, a weekly report where we discuss selected currency topics mainly from a macro point of view, but we also throw in a pinch of technical analysis here and there.
In this week’s edition, we discuss the dollar, as well as gold, sterling and bitcoin, and look ahead to the key events to come in the week ahead.
- Concerns about the US banking system are intensifying
- All eyes on NFP for FX Traders
- CPI next big event
- Gold testing key level
- GBP/JPY today’s big draw in currency
- Bitcoin falls below 20K
Concerns about the US banking system are intensifying
The US dollar has lost some ground over the past couple of days, and bond yields have also fallen as investors have sought safety in government debt. Concerns grew over the health of the US banking system this week. Silicon Valley Bank (SVB) saw its shares plunge after it announced plans to shore up its finances, while Silvergate Capital collapsed amid the crypto crisis. Shares in global financial companies fell on fears of contagion. If the Fed continues its rate hikes, more problems could emerge as people struggle to service debt amid high interest rates. Those concerns could be amplified if the Fed chooses to raise interest rates by 50 basis points this month. And that could be determined by the outcome of today’s wages report and/or CPI next week – although in the near term, data above forecasts should give the dollar another shot in the arm.
All eyes on NFP for FX Traders
So much depends on NFP data that will be released soon. The US labor market is strong, and this is a concern for the Fed, which wants to manage inflationary pressures. The question is, will we see another forecast print above on the headline jobs data after last month’s 500K+ reading?
Well, that’s the million-dollar question, but in terms of leading indicators for NFP, we had better-than-expected JOLTS job openings, the ADP private sector payrolls report and the employment component of the ISM services PMI.
The official non-farm payrolls reports have beaten expectations every month since last April. The January print was super hot at over 500K when less than 200K was expected. This time, the expectation is that 224,000 net new jobs were created in the economy (excluding the farming sector).
CPI next big event
With today’s US jobs report out of the way, it’s all about CPI next week. If both of these macro indicators come in hotter, or at least match expectations, that could further raise the stakes above a 50 basis point rate hike at the Fed’s March 22 meeting.
The market has begun to price in a more hawkish Fed after Chairman Powell warned that the US central bank could increase the pace of interest rate increases and could keep a tight policy in place for longer. This sent the odds for a 50 basis point rate hike at the March 22 meeting to over 70%. These expectations may rise further in the event of above-forecast readings for CPI and/or NFP. You would feel that the CPI would have to be significantly lower than expectations to cause a big sell off in the US dollar.
Gold testing key level
For gold to make a stronger recovery, we need to see a surprise miss in NFP today and/or CPI next week. If that happens, it could support stocks, gold and bonds as traders question the likelihood of a 50 basis point rate hike, especially in light of the SVB issues. On a side note, the market may have gotten ahead of itself as Powell did not explicitly say that 50bp is on the cards. So there is definitely room for disappointment if it ends up with just a 25bp increase on March 22nd. This therefore makes the upcoming NFP and inflation data very important.
GBP/JPY today’s big draw in currency
Guppy rose more than +1% to lead the GBP pairs higher after the UK economy grew more than expected (+0.3% month-on-month) and the Bank of Japan kept policy settings unchanged. But the bearish trend line could limit the upside in this pair if risk appetite picks up again later in the day. Still, the bulls will remain happy as long as key support around 163.00 remains intact. Lose that and it’s a completely different picture.
Bitcoin falls below 20K
Bitcoin was down for the fourth day and third week at the time of writing, after breaking $21.4K support, prompting follow-on selling at $20K as we had expected. Sentiment against crypto assets has been negative, and that hasn’t changed since Powell ramped up the Fed’s hawkish rhetoric earlier this week, weighing on all non-yielding assets, including crypto and gold. But cryptoassets have been hurt further after Silvergate, a bank that has been at the center of the industry’s growth, decided to shut down. When BTC/USD breaks down, we expect any rebounds to be short-lived until the price starts forming higher highs again. So watch out below!
Looking forward to next week
UK average income index
Tuesday, March 14
07:00 GMT
UK wages including bonuses have been steady around the 6% annual pace in nominal terms for several months. But annual CPI has been around 10%, meaning real wages have fallen as the cost of living crisis has deepened. The Bank of England monitors incoming data closely. This data release could certainly influence the MPC’s vote at its next meeting. The BoE governor recently said that “some further increase in Bank Rate may prove appropriate, but nothing has been decided.”
US CPI
Tuesday, March 14
12:30 GMT
The latest inflation data comes after central bank chairman Powell warned that the central bank could increase the pace of interest rate increases and could keep a tight policy in place for longer. This sent the odds for a 50 basis point rate hike at the March 22 meeting to over 70%. These expectations could rise further in the event of an inflation reading above the forecast. CPI would need to be significantly lower than expectations to cause a sell-off in the US dollar.
The ECB’s policy decision
Thursday 16 March
13:15 GMT
Most analysts expect the European Central Bank to raise the main refinancing rate by 50 basis points to 3.5%, maintaining the 50-bps rate of increase for the third consecutive month. Since the ECB’s last meeting, data for the Eurozone has been largely positive and core inflation rose to a new record high of 5.6%, although headline CPI fell slightly to 8.5%. These inflation readings are far too high for the ECB to be comfortable with.
— Posted by Fawad Razaqzada, Market Analyst at FOREX.com
