Digestion for USD-pairs after NFPs? Charts to Start the Week
- Seasonality suggests commodity FX better suited for rebound.
- See the March forex seasonality report for trends in the QE-era.
FX markets might experience a hangover this week, with the European Central Bank meeting and February US Nonfarm Payrolls having come to pass - arguably the biggest events in the first half of March. The consolidation seen across the developed currency spectrum in February has given way to breakouts and the resumption of trends, but after one week into March, it already may be time for digestion and consolidation of recent moves.
If anything was made clear last week, it was the widening policy gap between the ECB and the Fed, evidently the prime driver of EURUSD to its lowest levels in almost 12-years. Yet much of the recent moves seen are predicated around speculation: that the ECB's QE program, in its current form, might not be effective enough to fulfill the ECB's optimistic growth and inflation targets, ultimately requiring an expanded program/more easing; that the US labor market's move into "full employment" territory will finally stoke inflation pressures, thereby removing the last obstacle before the Fed can initiate its rates liftoff.
While these themes may play out over the next few weeks and months - especially as traders eye the March 18 FOMC meeting for removal of the word "patience" from the policy statement - there is breathing room for position covering/profit taking in the near-term. EURUSD, for example, has started to overextend itself from mean-reverting levels: it bottomed in January when it was -4.6% below its daily 21-EMA; it opened this week -3.5% below its daily 21-EMA. We remain US Dollar bulls, but we can't dismiss the possibility of some give back in a relatively quieter week on the economic docket.
--- Written by Christopher Vecchio, Currency Strategist
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