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Draghi sends the Euro lower with his dovish remarks, will today’s NFP report reinforce the decline?
MORNING BRIEF
Today is an important day for currency markets worldwide as it holds the first Non-Farm Payrolls report of 2014. Investors are excited to see how the job market in the US is fairing during the recent period and the consensus is that the report will beat expectations. Yesterday Dollar had a interesting day with volatility picking up around noon with ECB’s Mario Draghi delivering his speech after the Rate Decision. The main takeaway from his remarks was that the ECB is becoming even more concerned about the low inflation in the Euro area and he went ahead to strengthen his forward guidance repeating that the ECB will use all options to battle this issue. The Euro dropped to a new monthly low following Draghi’s remarks but bounced back up later. Our views regarding the Euro’s outlook remain negative, the European region is struggling with low inflation and sluggish growth and this must reflected on its currency against the stronger Dollar. The Pound also had a bumpy day yesterday, as the MPC left the key interest rate unchanged and the statement following the release didn’t reveal anything new. The Trade figures released yesterday showed an improvement in exports but the Pound failed to translate these news to any substantial move higher and today’s Industrial and Manufacturing Production figures might fuel a rally towards higher levels. Regarding today’s NFP release, most indications call for a strong printing in jobs, probably somewhere in the area of 200-210k jobs added. Recent jobs-related releases like the employment component in the Manufacturing and Non-Manufacturing ISMs and the ADP Employment report showed positive signs thus we believe that a surprise to the upside is quite likely. If this happens then we’ll be probably be looking for Dollar to pick up pace against the other majors and could send the Euro to fresh lows and the Pound testing 1.6400 again.
British Production data ahead of the first NFP report of 2014
The most important event in our Calendar today is the Non-Farm Payrolls report that is scheduled to be released at 13:30 GMT. The possible outcome of this release and how it will be reflected on the currency pairs’ outlook is discussed above but apart from this release earlier in the day we have some important news coming out of the UK. The Industrial and Manufacturing Production reports are scheduled for release early today and the Pound could get an early rally following the release. Expectations are that the figures will print better than expected as the UK is on the track of strong recovery and this is reflected across most production sectors in the country. Also later in the day, the NIESR GDP Estimate will be released but this will come just a couple of hours after the NFP report and we expect markets to remain focused on the jobs data and disregard this release completely.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
Industrial Production |
Medium |
3.0% |
3.2% |
|
9.30 |
GBP |
Manufacturing Production |
Medium |
0.4% |
0.4% |
|
13.30 |
USD |
Change in Non-Farm Payrolls |
High |
197K |
203K |
|
13.30 |
USD |
Unemployment Rate |
High |
7.0% |
7.0% |
|
15.00 |
GBP |
NIESR GDP Estimate |
Medium |
0.8% |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
Euro had a wild ride yesterday printing a new low following Draghi’s comments on the low inflation but the move lacked any momentum to drive the currency lower towards our targets. We remain short on the Euro, we believe that today’s NFP report might be the potential catalyst to drive the currency lower should it prints strong as expected. Our targets remain the same, target #1 at 1.3520 and target #2 at 1.3435, stops at the 1.3665 mark.
GBP/USD
The Pound is dragging its feet higher and our long entry was triggered at the 1.6475 price tag but the moved didn’t pick up pace to extend towards our target. We expect the Production data released early today to provide some friction to the currency pair and if they print strong as expected they will most likely provide the Pound with the demand needed to climb higher. Out trade stands as it is: entry at the 1.6475 price, targeting the 1.6520 mark with a stop placed at the 1.6415 level.
FTSE 100
The FTSE 100 printed a new low for 2014 yesterday falling below the 6,700 points level and triggered our short entry. We’re now committed in this trade even though the 200-period EMA arrested the index’s decline we remain short on the UK index. We’ve seen the FTSE on an overextended rally higher during December and from a technical standpoint a correction lower seems likely.
Gold
Gold traded higher against the Dollar yesterday and it is interesting that the commodity started the year strong against the Dollar. It is important to see how much higher can this move extend and whether Gold will form a double top formation topping out near the $1,250 area. For the time being we’re observing its movement and waiting for a tradable pattern to emerge. For those of you that already have trades on Gold today please be very careful as Gold tends to react in a volatile fashion to important US-related news.
The above charts have been created using FXCM’s Trading Station platform.
STOCK MARKET FOCUS
[Restricted Content] PLC.
The Alpesh Patel Momentum/Value filter has indicated [Restricted Content] PLC. as our stock of the day.
Company Information: [Restricted Content]
Created using Sharescope Pro
[Restricted Content] PLC. has been rated an 7 out 10 in our Value/Growth rating and gets an A Grade rating on our Bullish Momentum meter. The P/E ratio is medium suggesting that the stock might be fairly priced, the ratio of the price earnings growth is low and Turnover is up year on year supporting the growth potential. From a technical standpoint, the MACD indicator is pointing upwards in the weekly chart above suggesting further incline. The suggested holding period for a stock of this type is 2-3 months.
Important Information
The filters and settings in the Special Edition of the Sharescope software use Alpesh Patel’s proprietary criteria to generate suggestions of securities worthy of further investigation. They DO NOT CONSTITUTE INVESTMENT ADVICE.
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