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FX Markets in Holding Pattern Ahead of Tomorrow's NFP Report

FX Markets in Holding Pattern Ahead of Tomorrow's NFP Report

2017-04-06 12:31:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- ECB President Draghi pushes back against the Euro once more in speech earlier today.

- FOMC minutes yesterday appear to indicate two more rate hikes coming, winding down of balance sheet before year end.

- The retail crowd is both slightly net-long EUR/USD and GBP/USD; however, positioning in USD/JPY is concerning if you're a US Dollar bull.

It's been a slow start to the new month and new quarter, in part thanks to the gravitational pull of tomorrow's US labor market report. While there is not upcoming FOMC meeting whose outcome may be contingent upon the results of the US Nonfarm Payrolls report, market participants appear to be waiting on confirmation - or denial - of some of the Fed's recent prognostications about the US economy before committing to a direction in various financial instruments - stocks, bonds, FX, etc.

For the US Dollar, this hesitation has materialized in a symmetrical triangle (or falling wedge) via DXY Index. EUR/USD finds itself back within a symmetrical triangle that's governed price for the past three months. GBP/USD? Now trading in a triangle within a triangle (it's been 'incepted?') AUD/USD has been stuck in a sideways range since the middle of January. In other words, FX markets are looking for a catalyst to shake them out of these consolidations.

Unfortunately, while tomorrow's NFP report might bring about volatility (which you can register for here), the volatility is only likely to be short-term in nature. There are several macro-level questions that needed to be resolved that will prevent micro-level events from proliferating for long periods of time.

For the US Dollar, questions remain over the Trump administration's fiscal stimulus plans: the healthcare repeal, tax reform, and infrastructure spending. For the Euro, despite ECB President Draghi's attempts to pushback against the market interpretation of the ECB's March policy meeting, French elections on April 23 and May 7 hold much more significance. For the British Pound, Brexit may be on everyone's minds, but the evolution of consumer spending and the inflation outlook will be much more significant to how the BOE proceeds going forward (and only time will yield answers there).

If you prefer to trade breakouts and/or trends on longer-term time horizons like I do, then this is a bit of a frustrating period. However, if you like trading ranges, there are plenty out there right now - EUR/USD, GBP/USD, and AUD/USD come to mind right away.

See the above video for technical considerations in DXY Index, EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, Gold, and Crude Oil.

Read more: Weekly Trading Q&A: USD Ahead of NFPs; ECB Stunts Euro Rally; April Seasonality

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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