USD shows off its muscles as NFP data shine

CURRENCY TRADING SUMMARY 09/03/2015

Following its drop below the 1.10 rate on Thursday, and Friday’s subsequent nosedive after the release of February’s Nonfarm Payrolls (NFP) data, the EUR/USD could be truly on its way to parity. European Central Bank’s (ECB) monetary policy statement and press conference delivered by its President Mario Draghi was not particularly dovish, however the world’s most popular currency pair kept extending its losses and reached a twelve year low.

Although some will argue that there is evidence to imply that ECB’s President sounded fairly optimistic, it feels like nothing can alter the EUR/USD’s continuous downtrend. Indeed, the reason why he did not sound dovish is simply because he does not have to talk the euro down any more, and it seems that the growing number of EUR/USD bears are driving the rate downwards by themselves. Traders who were anticipating some more details about the imminent Quantitative Easing (QE) program on Thursday got their information by Mario Draghi’s press conference, but let’s not forget that the upcoming QE is something new for the ECB and so the forecasts for further euro weakness are very much excused.

On the other hand, the USD continues its noteworthy gain of strength after the release of the NFP data for by the U.S. Department of Labour. Last Friday’s report showed that the number of people on payrolls increased by 295,000 in February compared to an increase of 239,000 for the previous month. The increase in employment took the markets by surprise as there were forecasts for the NFP data to increase almost by the same number as the previous month i.e. 240,000. The encouraging data had once again a positive effect on U.S. dollar bulls’ sentiment that the Federal Reserve (Fed) could be pushed to increase interest rates within this year. It has been evident for quite some time now that there is a difference in dynamic between the U.S. dollar and most of its major trading peers, and last week’s release of NFP data helped to establish this perception. The EUR/USD dropped on Thursday following the ECB monetary policy and Draghi’s press conference, and on Friday it took a sharp nosedive by 1.73% to 1.08376. On a weekly basis, the currency pair incurred big losses by 3.17% and that is exactly why traders are not ruling out the scenario of parity between the euro and the U.S. dollar!

Along with the ECB, the Bank of England (BOE) decided to hold interest rates unchanged while now six years have past after the last trim of borrowing interest rates to their lowest level with the intention to pull out the United Kingdom’s economy from recession. The Monetary Policy Committee (MPC) kept the benchmark interest rate at the all-time low of 0.5% and given that the U.K.’s inflation level stands at 0.3%, along with the possibility of the upcoming Consumer Price Index (CPI) possibly showing a decline, there is not enough pressure on British policymakers to proceed to an interest rate increase. The GBP/USD incurred losses on Thursday following BOE’s interest rate decision, while the next day it took a sharp nosedive after the NFP results managed to strengthen the dollar even more. On Friday the pound sterling fell by 1.44% and ended the weekly trading at 1.50204.

So it looks like most traders are now monitoring the ongoing strengthening of the dollar while almost every piece of encouraging U.S. economic indicator release lifts the USD against other currencies even more. So why not the upcoming Retail Sales data? The report is expected for release by the U.S. Census Bureau on Thursday 12 March at 12:30 and given its importance, the data could provide another reason for the markets to jump up and down.

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