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Fed: Better safe than sorry – Commerzbank

FXStreet (Córdoba) – In its statement on Wednesday, the Fed kept the door open to an interest rate rise in March, according to Esther Reichelt, analyst at Commerzbank, the USD is therefore becoming increasingly sensitive to the economic data. “A good labour market report next Friday should support the USD for now.”

Key Quotes

“At its January meeting, the Fed did not rule out an interest rate rise in March. The US dollar has not profited from this yet; US data and the situation on equity markets this year have so far given the market more reason to expect a rate pause in March. And the market remains cautious. Besides lasting calm on global financial markets, solid US economic data are a necessary prerequisite for the market to see any chance at all of a rate step in March.”

“However, the more bullish the upcoming data publications are, the more likely a move on rates should become and the stronger the US dollar should become. Against this backdrop, the data heavyweights due for publication in the week ahead should be able to offer the US dollar support initially.While the ISM index for manufacturing is expected to remain weak in next Monday’s release, it should have improved a little on December.”

“Ultimately however, all eyes will be on the labour market report on Friday, as the Fed gave the labour market a prominent place in its communiqué last Wednesday. Catch-up effects in wage growth in particular could lend impetus to the US dollar as the Fed needs urgent signs that inflation pressure is rising. However, this will probably not be enough to break out of the EUR/USD trading range of 1.0750-1.10 that has formed since the beginning of the year. The FX market is too cautious for that given the still moderate outlook.”

In its statement on Wednesday, the Fed kept the door open to an interest rate rise in March, according to Esther Reichelt, analyst at Commerzbank, the USD is therefore becoming increasingly sensitive to the economic data. “A good labour market report next Friday should support the USD for now.”

(Market News Provided by FXstreet)

GBP/USD: Limited recovery, remains near multi-year lows

FXStreet (Córdoba) – A week ago the pound started an important rally against he US dollar, recovering from the lowest level since 2009 but it was limited and after a sharp reversal, cable is about to end the week modestly lower.

From 2-week highs to 1.42

During the Asian session, the decision of the Bank of Japan boosted risk appetite and GBP/USD climbed to 1.4412, hitting a 2-week high. The pair appeared to be ready to extend the rally but it turned to the downside falling more than 200 pips in a few hours.

The rally was capped again by the 20-day moving average that stands around 1.4390. The pair traded above but it failed to consolidate and ended making a reversal. During the last hours of trading, it trimmed losses and climbed back above 1.4200. It was about to end the week around 1.4220/40, slightly below last week close.

Another busy week

After days with key economic data from the UK and the FOMC decision, next week is also going to be busy. The most important event will be the release of the Bank of England decision (and the Inflation Report) and the Non-Farm Payroll report in the US.

No change is expected in the BoE, attention will lie on the minutes of the meeting and on the inflation report. “Despite the upward impacts of a 4% weakening in trade-weighted sterling since the November report, further downgrades to projections for GDP growth and inflation over 2016 and 2017 are expected”, said analysts at Lloyds Bank.

In the US, markets consensus point toward an increase of 200K in NFP. Analysts from TD Securities expect the pace of employment growth to slow to 177K and the unemployment rate to remain unchanged at 5.0% “In the coming months, we expect the positive momentum in the labor market to be sustained, though the pace of growth should remain in the 175K to 200K range.” A NFP number considerably below expectations would reduce expectations of another rate hike by the Fed during the first half of 2016.

A week ago the pound started an important rally against he US dollar, recovering from the lowest level since 2009 but it was limited and after a sharp reversal, cable is about to end the week modestly lower.

(Market News Provided by FXstreet)

Mixed Norwegian data keeps EUR/NOK elevated – UBS

FXStreet (Córdoba) – Friday’s multiple data releases from Norway failed to strengthen the NOK, which is still relying on market risk sentiment and oil prices for now. According to UBS analyst team, the data indicates that the Norwegian recovery story may take a bit longer than previously assumed. “We still see markets pricing EUR/NOK too high compared to fundamentals, but are also monitoring risks of a further delay of Norway’s economic recovery.”

Key Quotes

“The main disappointment has been a 1.3% month-over-month drop in Norwegian retail sales. This brings them back to the September level and makes 2015 a year of flat sales in real terms. Registered unemployment continued rising slowly in January, mainly due to more job losses in oil regions. However, vacancies seem to have turned over recent months, shooting up in January and possibly indicating the end of rising unemployment rates.”

“While Norway’s economic data may currently lack vigor, very easy monetary conditions should still prevent a bigger impact from the oil downturn on the rest of the economy. Hence, EURNOK remains too high compared with economic fundamentals and interest rates, as markets still have a very pessimistic view on the Norges Bank rate outlook. The European Central Bank and the Bank of Japan have clearly indicated their readiness to deliver more monetary easing. Sweden may be forced to follow in their footsteps. This stands in stark contrast to the already high Norwegian inflation rate and the Mainland economy’s ability so far to withstand the oil downturn.”

“We thus still see considerable room for EUR/NOK to drift lower to 9.00 as markets re-price over the next three months.”

Friday’s multiple data releases from Norway failed to strengthen the NOK, which is still relying on market risk sentiment and oil prices for now. According to UBS analyst team, the data indicates that the Norwegian recovery story may take a bit longer than previously assumed. “We still see markets pricing EUR/NOK too high compared to fundamentals, but are also monitoring risks of a further delay of Norway’s economic recovery.”

(Market News Provided by FXstreet)

Gold posts 5% monthly gain

FXStreet (Córdoba) – Gold prices ended Friday higher despite a stronger dollar, with the yellow metal posting a monthly gain in January helped by its safe-haven condition.

A strong risk-averse environment during the first weeks of the year, amid turmoil in Chinese markets, increased the appeal for safety and underpinned the metal off multi-year lows scored in December.

Gold closed Friday just above $1,116,0.18% higher on the day, posting a 1.64% weekly advance and a gain of over 5% for the month.

Gold prices ended Friday higher despite a stronger dollar, with the yellow metal posting a monthly gain in January helped by its safe-haven condition.

(Market News Provided by FXstreet)

USD/BRL likely to test all-time high around 4.25 – SocGen

FXStreet (Córdoba) – According to analysts from Societe Generale, if there is no political change, neither structural reforms or an improvement in the external outlook, the US dollar in Brazil is likely to test all-time highs soon.

Key Quotes:

“The BRL is one of the Latam currencies that has escaped the oil-related EM FX rout, falling by only around 2% year-to-date against the USD to USD/BRL 4.04. The economy continues to feel the pressure from falling commodity prices, low domestic demand, political turmoil and the lack of structural reform. We have therefore revised our 2016 growth forecast from -1.4% to -3.2% and see further downside risks to the economic outlook (…) Also, we no longer expect any growth recovery in 2017, and the economy could be in recession for three consecutive years”.

“Due to the worsening economic outlook and rising external uncertainties, the central bank left rates unchanged at 14.25% at its last meeting. The decision was not unanimous, as some members raised concerns about rising inflation expectations. We think that the central bank could be forced to continue its rate hiking cycle if inflation accelerates further.

“We anticipate that the current growth/inflation outlook will result in a steady depreciation of the BRL in line with the path currently priced in by the forwards. At the same time, domestic political developments will be a key driver for the BRL, and we think that expectations for a successful impeachment process against President Rousseff have kept the BRL supported in early 2016. We acknowledge that the likelihood of a successful impeachment has marginally diminished in recent weeks, and we think that, in the absence of political change, structural reforms or a significant improvement of the external backdrop, USD/BRL will soon test its previous all-time low of around 4.25.”

According to analysts from Societe Generale, if there is no political change, neither structural reforms or an improvement in the external outlook, the US dollar in Brazil is likely to test all-time highs soon.

(Market News Provided by FXstreet)