The incredible USD run of form is continuing and accelerating further, with the USD once again racing ahead of its trading partners after the announcement that the United States added another 295,000 jobs to its economy last month. This has once again reaffirmed expectations that the Federal Reserve will have to raise US interest rates this year, which the USD bulls are loving. It’s been mentioned before that the complete divergence in economic sentiment and monetary policy between the United States and everywhere else has become eye-catching, and it’s been further stretched once again this afternoon.
Basically, there are three different types of central banks right now:
1) The hawkish who are on the verge of raising interest rates at some point soon (Federal Reserve)
2) The neutral who very much have a laissez-faire attitude towards interest rates right now (BoE)
3) The dovish who have eased monetary policy this year in an attempt to devalue their currency (around 20 and counting)
As you can see, the Federal Reserve is standing alone and as a result traders’ money is clearly on the table of the USD. What does the US jobs report mean for the Eurodollar? A further indication that we have turned the corner on the commute to parity this year.
The EURUSD has fallen as low as 1.0858 following the US jobs data. As mentioned as soon as the ECB announced QE in January, the EURUSD is likely to extend as low as 1.0786 by the end of March. There was some mention that ECB President Mario Draghi was slightly more relaxed and upbeat than we have become used to as demonstrated by his announcement yesterday afternoon, and that’s basically because he no longer has to make dovish comments to send the euro lower anymore – the EURUSD decline is signed, sealed and continuing to be delivered. The ECB officially implementing QE in a few days basically means that the central bank is entering a new era of monetary easing – meaning that there are even further reasons to expect continued currency weakness.
The USDCHF has bounced to 0.9817 following the NFP announcement. The correlation between the euro weakening, and the franc weakening in sync is emerging again. The rumours that the Swiss National Bank (SNB) has set another minimum exchange rate against the euro is continuing to circulate and although this has not been confirmed, this is either happening or another large financial institution is hedging on it.
Why has Gold fallen to a two-month low just below $1180? The impressive NFP has reinstalled optimism that the Federal Reserve will have to raise interest rates at some point, which underpins the longer-term bearish expectations for metals.
Anyway, I am off to continue watching the Turkish Lira explode into weakness. We are very much encountering a Ruble decline version 2.0, with the repeated punishment the Ruble faced last year being replaced with the Lira. Central bank independence is under scrutiny after President Erdogan’s explicit criticism of the Central Bank of Turkey, with further interest rate cuts being demanded and traders pricing this into the Lira.
I am also waiting for the Danish central bank to intervene to defend the EURDKK peg.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.
Follow Jameel on Twitter @Jameel_FXTM
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