Last week saw aggressive buying of the USD as bulls continued to push the greenback higher as participants further priced in a higher probability of a March rate hike after positive economic data out of the USA and bullish rhetoric out of the FOMC voting members. The USD Index, a measure of the strength of the USD against a basket of currencies, traded above 102 after finding support at 100.50 as markets bought the greenback hand in hand with the increasing probability of a rate hike.
The end of the trading week was capped off by a speech by the head of the Federal Reserve Bank, Yellen, who somewhat disappointed bulls by striking a more cautious tone in which she stated that though a March rate hike is on the table, the Fed would remain vigilant of upcoming inflation and employment data before making a decision. This resulted in the USD Index retreating from its highs, falling to 101.25 as bears drove the USD lower.
Going forward, traders will be vigilant of all US economic data and speeches by FOMC members as they try to further deduce whether a rate hike in March is a go or not. Perhaps the most important data release for the month is that of the Non-Farm Payrolls figure, expected at 185k, and the Average Hourly Earnings m/m figure, expected at 0.3%. Both figures are expected on Friday and will answer both of Yellen`s concerns.
The NFP figure is a leading indicator of the health of the labor market, and a better than expected number, in which more people started working, will see the probability of a March rate hike shoot higher. However, if the hourly earnings figure prints a better than expected result, the March rate hike would be a certainty as traders fully price in a March hike on the back of the inflation predicting figure putting the cherry on top. However, should both number fail to meet expectations, we would see heavy unwinding of USD longs with the USD Index dipping well below 100 as USD bulls run for the hills and sellers emerge to drive the USD lower as they rice in a decreased probability of a rate hike.
Until then, it is prudent to be vigilant of all economic data and comments out of the USA, buying the USD on good news and selling it on bad news.