Market Drivers for March 7, 2014

Euro hits multi-year highs ahead of NFPs

Risk FX and yen crosses remain well bid

Nikkei 0.92% Europe -.36%

Oil $101/bbl

Gold $1348/oz.

Europe and Asia:

EUR GE WPI -0.1% vs. 0.6%

EUR French Trade Balance -5.7B vs. -5.3

EUR GE Industrial Production

North America:


USD Trade Balance 8:30 AM


CAD Trade Balance 8:30 AM

Risk currencies remained well bid ahead of the US Nonfarm Payrolls report with EUR/USD hitting multi-year highs as traders were clearly primed for a lackluster report. The EUR/USD rose to a high of 1.3882 in morning London dealing, hitting its best levels since 2011. The pair has been driven higher by a relatively hawkish ECB presser yesterday at which Mario Draghi offered no new stimulus measures for the region.

The general tone of yesterday press conference was that the budding signs of pick in economic activity offset any need to ease marked by the very low inflation readings. Mr. Draghi attributed the ultra low price levels in EU in large part to lower energy costs and higher EUR/USD exchange rates. Therefore he did not view them as a deflationary threat and the ECB has chosen to remain stationary for the time being.

The recent combination of better than expected economic data from the rest of the world and slightly worse than forecast readings from US – partly skewed by the bad weather this winter – have provided a perfect environment for the rally in risk FX with only the euro, but also the pound and all the commodity dollars rising against the greenback this week. The Aussie for example hit a 3 month high in tonight’s trade and the kiwi broke above the key 8500 barrier.

Assuming today’s NFP report shows generally tepid results the rally in risk currencies could continue. The preliminary data certainly suggests a weak reading with ISM Services employment subcomponent sinking to its lowest level in 4 years. The weather no doubt will have an impact on today’s report and the data could print lower than the 150K market consensus.

Although there is a strong possibility of a downside miss, unless the number is woefully low at 70K or less, the market is likely to ignore the data and attribute any weakness to weather related problems. That suggests that USD/JPY may not see much of a selloff as result. On the other hand if the number is surprisingly stronger at 175K or more, USD/JPY could extend its rally through the 103.50 level and carry yen crosses to fresh highs as well with markets concluding that global growth is far more resilient than originally thought.

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