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  • German, French and Italian data may reinforce dovish ECB tone
  • US Dollar likely to find an excuse for gains in February jobs report
  • Stocks’ inability to rally on monetary stimulus boost looks ominous

German factory orders as well as French and Italian industrial production data headline a relatively muted European economic calendar. Downbeat outcomes echoing the trend toward underperformance on Eurozone statistical releases in recent months may ratify yesterday’s dovish ECB policy announcement, weighing on the Euro and stoking global slowdown fears to the detriment of broader risk appetite.

Lasting follow-through seems unlikely however. Mario Draghi and company have probably made the point that continental Europe is in a tough spot convincingly enough yesterday, at least for now. That might see traders looking ahead to February’s US employment data for the next major catalyst and withholding directional conviction in the interim.

Job creation is expected to slow, with nonfarm payrolls posting a 180k increase after January’s hefty 304k rise. The jobless rate is expected to tick lower to 3.9 percent however, while wage inflation accelerates to 3.3 percent. Taken together, that points to shrinking slack in the labor market, which could plant the seeds of doubt in the recent dovish shift in Fed policy expectations.

If realized results bear this out, the US Dollar is likely to rise. The risk of disappointment is meaningful however. Indeed, US data outcomes have broadly deteriorated relative to baseline forecasts in recent weeks, hinting that analysts’ models are overstating the economy’s vigor. A soggy outcome may still buoy the Greenback however as sentiment sours, engaging the currency’s haven appeal.

Performance across the rest of the G10 FX space may reflect familiar risk on vs. off divisions. Data painting a relatively encouraging picture of the world’s largest economy might inspire a bit of backtracking on defensive bets, boosting the cycle-linked commodity currencies and weighing on the Japanese Yen. Figures that rattle already jittery investors may yield the opposite results.

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Stocks drop as dovish ECB triggers risk aversion

A sense of urgency in boosting monetary policy support might have been expected to be cheered by markets pining for a rescue as global headwinds mount. In fact, I said as much ahead of yesterday’s ECB rate decision. As it happened, President Draghi and company so thoroughly spooked investors that shares (S&P 500 futures, turquoise line), yields (US 10-year, orange line), AUD/USD and NZD/USD (blue and purple lines) plunged. Traders must be in a foul mood indeed, with the bar for a positive turn in sentiment now seemingly set uncomfortably high.


--- Written by Ilya Spivak, Currency Strategist for

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