Talking Points

  • U.S. Dollar: NFPs Disappoint, Participation Rate Lowest Since 1979
  • Euro: Retail Sales Contracts, Banks to Repay EUR 8.1B in LTRO
  • British Pound: BoE’s Dale Sees More Bank Lending on FLS

U.S. Dollar: NFPs Disappoint, Participation Rate Lowest Since 1979

The greenback is struggling to hold its ground on Friday, Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) tagging a low of 10,436, and we may see currency traders scale back their bullish outlook for the reserve currency as the U.S. faces a slowing recovery.

Indeed, U.S. Non-Farm Payrolls increased a mere 88K in March amid forecasts for 190K print, while the jobless rate unexpectedly slipped to 7.6% from 7.7% amid a 496K drop in the work force. As the participation rate slips to the lowest since 1979, the ongoing weakness in the labor market may encourage the FOMC to carry out its easing cycle throughout 2013, but there remains limited scope of seeing the central bank expands its asset purchase program beyond the $85B monthly limit as the economic recovery gradually gathers pace.

Euro: Retail Sales Contracts, Banks to Repay EUR 8.1B in LTRO

The Euro surged to a fresh weekly high of 1.3028 as U.S. Non-Farm Payrolls fell short of market expectations, and the pair may continue to retrace the decline from the previous month as the U.S. dollar struggle to hold its ground.

Beyond the market reaction to NFPs, the economic docket showed retail spending in the euro-area contracting 0.3% during the month of February after rising a revised 0.9% the month prior, while the European Central Bank (ECB) said commercial banks will repay EUR 8.1B of the three-year loans next week, which could further dampen the outlook for growth as the region faces tightening credit conditions.

Although the euro-area economy appears to be showing signs of stabilization, ECB board member Benoit Coeure warned of slowing growth across the region, and the Governing Council remains poised to push the benchmark interest rate to a fresh record-low as the prolonged recession threatens price stability.

As ECB President Mario Draghiremains committed in saving the monetary union, the bullish sentiment surrounding the single currency may gather pace in the days ahead, but the Euro may struggle to hold its ground in the week ahead should the developments coming out of the region further dampen the outlook for growth and inflation.

As the EURUSD breaks out of the downward trending channel carried over from back in February, the pair looks poised to make a run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, but we may see the longer-term bearish flag pattern may continue to pan out as the fundamental outlook for the euro-area turns increasingly bleak.

British Pound: BoE’s Dale Sees More Bank Lending on FLS

The British Pound broke out of the range from earlier this month, with the GBPUSD climbing to a high of 1.5326, and the sterling may continue to pare the sharp decline from earlier this year as the Bank of England (BoE) preserves a neutral policy stance.

BoE Chief Economist Spencer Dale struck a rather upbeat tone for the U.K. economy and expects bank lending to increase this year as the Funding for Lending Scheme continues to work its way through the real economy, and it seems as though the majority of the Monetary Policy Committee will maintain a neutral policy stance throughout 2013 as they see a slow but sustainable recovery in Britain.

Nevertheless, as market participants wait for the BoE Minutes due out on April 17, we anticipate the policy statement to show another 6-3 split within the MPC, and the GBPUSD may work its way back towards the 38.2% Fib from the 2009 low to high around 1.5680 as market participants scale back bets for more quantitative easing.

FX Upcoming










Ivey Purchasing Managers Index s.a. (MAR)






Consumer Credit (FEB)



--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong

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