By Zac, CountingPips.com
Today, I am pleased to share a forex interview and market commentary on this week’s major events and forex trends with quantitative analyst at DailyFx.com, David Rodriguez. David’s specializes in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by parent company, FXCM.
Q: The US nonfarm payrolls government job report is due on Friday with the DailyFX calendar showing an early projection of 182,000 jobs to be gained for February. Many analysts concluded that January’s report was lower due to weather conditions in the US. Do you expect a “rebound” in the jobs report and do you feel this would have a positive effect on the US dollar?
We not only expect a rebound, but we must absolutely see a rebound if expectations of US economic growth are to hold steady. January’s dismal NFP result was indeed blamed on seasonal effects due to the weather. But if the weather was truly to blame, we should see a strong bounce in February data as workers return to their posts. If we don’t, we could see the US Dollar weaken considerably as pressure mounts on the US Federal Reserve to keep monetary policy exceptionally loose through the foreseeable future.
Q: There are many major data releases and events on the schedule this week, what do you feel may turn out to be the most important event to watch for concerning the forex markets this week?
Nonfarm Payrolls remains the obvious choice for top-billing across global economic calendars. Historically one of the largest market movers across financial markets, this particular release date takes on renewed importance due to January’s dismal jobs report. NFPs matter because they set the tone for subsequent US Federal Reserve monetary policy, and any substantial misses could really hurt the Greenback against major currencies.
Q: The Reserve Bank of Australia’s interest rate decision is due out this week while the Bank of Canada’s interest rate decision is also coming out with the expectations that both bank’s will be holding the interest rates steady. Which do you feel may possibly have more of an impact on their respective currencies?
Both central banks are almost unanimously expected to leave interest rates unchanged, but the Australian Dollar has historically proven far more sensitive to RBA rate expectations than has the Canadian Dollar to BoC expectations. Overnight Index Swaps currently price in fairly limited rate moves from the Reserve Bank of Australia through the coming 12 months. Thus risks arguably remain to the topside, as a surge in hard commodity prices reignite risks for inflation and generally buoyant Australian economic data support the case for higher rates. It will be important to keep a close eye on the post-decision statement from the RBA.
Q: Can you share your analysis on the EUR/USD pair? What do you feel is driving this pair at the moment and where do you think it may be headed?
The Euro/US Dollar is being driven by broader US Dollar weakness and not necessarily Euro strength. In fact the single currency has been a relative under-performer as of late, and we expect USD trends to continue driving the pair through the near term. Given bearish US Dollar momentum, we could expect the EUR/USD continue to test recent peaks until a broader recovery for the beleaguered US currency.
Q: The USD/CAD currency pair has broken out of its fairly tight range to the downside and the price of oil will likely be very sensitive to the political unrest in the Middle East. Do you think this continues to push the Loonie higher versus the dollar? Is USD/CAD at all likely to test the low levels from 2007 near 0.9400?
The Canadian Dollar continues to defy calls for a substantive correction, and oil prices remain one of the most important drivers of further Loonie gains. One troubling sign is nonetheless that CFTC Commitment of Traders data shows large speculators the most net-long the CAD (short USDCAD) since the currency topped through early 2010. Sentiment extremes are incredibly different to time and are only clear in hindsight. Thus we remain cautious with the USDCAD on the risk that it could see a substantive correction through the near term, but the timing of any such move is anything but clear.
Q: On a technical basis, do you have any specific currency pairs in your sights that may warrant watching?
Almost all US Dollar pairs continue to challenge important support and resistance levels, making it a make-or-break week for the US currency. We are watching the Euro/US Dollar, Australian Dollar, British Pound, Japanese Yen, and other key pairs to see if the Greenback holds support. It will be critical to watch whether the downtrodden USD can bounce from important technical levels.