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Idea of the Day

After the much weaker than expected US jobs report on Friday, the dollar is on the defensive and once again expectations of a dollar bull run have been undermined. But as always the picture is far from clear, with the weak headline figure (from the survey of firms) contrasted by a strong fall in the unemployment rate (from survey of households). Does this mean the Fed will hold back form tapering again at the end of the month? Probably not in our view. They were as cautious as they could be in the December move and will most likely want to keep the modest tapering momentum going, with another $10 billion reduction in monthly purchases. Remember that the economy is likely to grown with a 3% annualized handle in Q4 and the fiscal clouds have lifted. As the Fed will say, tapering is not tightening, so the stance remains very accommodative. The data also underlines our view that dollar appreciated in Q1 is not going to be dominant with the Fed taking a cautious approach.

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Data/Event Risks

USD:  Just the monthly budget statement released at 19:00 GMT this evening, although this is not a release that is likely to impact the dollar.

EUR:  Inflation data in both Greece and Portugal released today. Not likely to move the single currency, but Greece and likely Portugal are going to show negative readings, underlining the real problem that the ECB currently has in setting policy for the cas a whole.

Latest FX News

AUD:  Moving to 1-month high after US jobs numbers on Friday, up to 0.90 on Friday and finding a further bid during the Asian session today.

EUR:  Has remained steady after the US numbers on Friday. What was noticeable was the fact that the euro regained all of the losses after Thursday’s ECB press conference in a short space of time.

JPY:  There was further covering of short yen positions during the Asian session, taking the yen to levels last seen 3 weeks ago against the dollar. Once again, the established thinking of the new half year has been undermined by data.

Further reading:

GBP/USD Outlook Jan.13-17

EUR/USD: Bounces Off Rising Trendline, Eyes Further Upside