Yesterday’s highlight came from the European Central Bank (ECB), which struck a rather hawkish tone in which they outlined a relaxation of bond purchasing and omitted key dovish comments from their language in the press conference. Though the ECB was cautious in not alluding to an increases in interest rates, markets could not help but take a positive message away from the meeting which resulted in the EUR finding strong buying pressure as we saw the EURUSD reclaim the 1.0600 level.
Today sees markets turn to the USA where we are expecting 2 key economic statistics which will be vital for the future outlook of the USD, commodities and US equities at large. In recent weeks, economic data and rhetoric from FOMC members and the Chair of the Fed, Yellen, herself, have been fueling a rally in the USD. The members have been extremely hawkish and maintain their stance on the need for at least 3 interest rate hikes in 2017 which saw markets jumping on the bandwagon to price in a March rate hike. However, there is room for disappointment as the FED have said that a March hike is on, provided that data is accommodative. The key data the fed will be looking at are the labor and inflation statistics.
Today’s releases in the form of the NFP and the Average Hourly Earnings figures will cover both these aspects. If we see a better than expected NFP, implying more jobs were created in the previous month than expected and a better than expected Average Hourly earnings figure, implying that wages are pushing higher and thus inflation will follow, we will almost certainly see a full pricing in of a March rate hike with the USD moving higher with GOLD and Equities falling.
A mixed bag of data will be tricky and could go either way, but given the recent increased pricing in of a rate hike, we will likely see an unwinding of current positions with the USD falling while gold and equities rise. A miss on both numbers, will spell trouble as we will likely see the probability of a March hike evaporate with heavy selling of the USD and strong buying of gold and equities.