USD Weakens Ahead Of Employment Report Release

Fundamental analysis of Forex market

The USD weakened against a number of its counterparts and especially EUR, JPY and GBP as US treasury yields dropped to record lows. The drop of the yields was caused by a fled of investors to the safety of bonds, as fears for the outbreak and impact of the Coronavirus in the US mounted. It should be noted that the market seems to be pricing in another 50 basis points rate cut by the Fed by 60% currently, for the second time in March, after the surprise cut on Tuesday. The weakening of the USD occurred ahead of the release of the US employment report for February today in the American session (13:30, GMT). Expectations are for the unemployment rate to remain unchanged at 3.6%, the NFP figure to drop to 175k, if compared to prior reading of 225k, and the average earnings growth rate to slow down to 3.0% yoy, if compared to prior reading of +3.1% yoy. The forecasts seem poised to weaken the USD further, as they hint towards a possible easing of the US labour market, yet the wide uncertainty and the coronavirus deflection may create wide uncertainty for the market’s reaction. EUR/USD rallied yesterday, breaking consecutively the 1.1170 (S2) and the 1.1230 (S1) resistance lines, no turned to support. We maintain a bullish outlook for the pair, yet some correction lower could be in the cards for the pair after yesterday’s rally. Also, we expect today’s fundamentals as analysed above to play an important role in the direction of the pair today. Should the bulls maintain control over the pair’s direction, we could see it aiming If not breaking the 1.1285 (R1) resistance line, aiming for higher grounds. Should the bears take over, we could see the pair breaking the 1.1230 (S1) support line and aim for the 1.1170 (S2) support level.

GBP strengthens as BoE rate cut worries fade away

The GBP strengthened yesterday against the USD, as worries for the BoE to cut rates following the Fed’s lead weakened, and the USD showed a broad weakening as analyzed above. BoE’s incoming governor Andrew Bailey stated to UK lawmakers yesterday that the BoE should wait until it has more clarity about the economic impact of the Coronavirus outbreak before making any decisions to cut interest rates. At the same time, it should be noted that the market seems to be fully pricing in a possible 25 basis rate cut in the bank’s meeting on the 26th of March. Please bear in mind that EU’s top negotiator, Barnier, in a press conference yesterday, warned about serious divergences between the EU’s and the UK’s positions after the first round of negotiations for the trade relationships of the two economies. Also, the EU side denied a UK request for an early wrap of a possible deal for access of UK’s financial services to the EU, practically extending the uncertainty for UK’s crucial financial sector. GBP/USD rallied yesterday breaking the 1.2940 (S1) resistance line, now turned to support. The pair has also broken the upper boundary of the downward channel containing the pair’s main body of movement since the beginning of the year. Should the pair maintain a movement above the prementioned downward trendline, and above the 1.2945 (S1) support line we would switch our bearish outlook for the pair in favor of a sideways movement. Should the bulls be in charge, we could see the pair breaking the 1.3015 (R1) resistance line and aim for higher grounds. If the bears take over, we could see it breaking the 1.2945 (S1) support line and aim for the 1.2860 (S2) support level.

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Other economic highlights today and early tomorrow

Today during the European session, we get Germany’s industrial orders for January and in the American session Canada’s employment data for February. On Saturday we get China’s trade data for February and on Monday’s Asian session we get Japan’s current account balance for February and the revised GDP growth rate for Q4. As for speakers, EU Brexit negotiator Barnier along with a substantial number of Fed’s policymakers are scheduled to speak today.

EUR/USD 4 Hour chart

Support: 1.1230 (S1), 1.1170 (S2), 1.1115(S3)
Resistance: 1.1285 (R1), 1.1345 (R2), 1.1410 (R3)

GBP/USD 4 Hour chart

Support: 1.2945 (S1), 1.2860 (S2), 1.2770 (S3)
Resistance: 1.3015 (R1), 1.3085 (R2), 1.3150 (R3)