Dollar on standby ahead of NFP

March 10, 2017 11:49 AM

The ever-rising expectations of the Federal Reserve raising U.S. interest rates in March have made the Greenback king this trading week. Although the Dollar Index has found itself under some selling pressure below 102.00 during early trading on Friday, this technical correction could simply provide a foundation for bulls to install fresh rounds of buying in the future. With the blockbuster ADP report boosting the bullish sentiment towards the Dollar, further appreciations could be expected if today’s NFP exceeds estimates. Bulls remain in firm control moving forward and it may take an extreme anomaly in the pending U.S. jobs report to abruptly cool the heated expectations of the Fed taking action next week.

From a technical standpoint, the Dollar Index is bullish on the daily charts. A weekly close above 102.00 could encourage a further incline higher towards 102.50.

Euro gifted a hawkish lifeline
The vulnerable euro received a lifeline during trading on Thursday with prices springing above 1.0600 following the hawkish surprise from the European Central Bank that caught markets off guard. Although key interest rates were kept at record lows as expected, the optimism radiating from Mario Draghi regarding the recovery of the European economy simply inspired the euro bulls. With the central bank no longer seeing a “sense of urgency” to take further action on monetary stimulus, markets may acknowledge this as a potential inflection point for the ECB to gradually change its monetary stance. The fact that policymakers are already anticipating that it will not be necessary to lower interest rates further in the future could signal a gradual end to an era of negative rates if the European economy continues to stabilize.

Although the outlook for Europe is starting to look somewhat encouraging amid the positive economic data, the uncertainty gravitating around the elections in Europe continues to weigh heavily on sentiment. The threat of political developments overshadowing the positive macroeconomic factors could expose the Euro to sharp losses in the short to medium term. While the current upside momentum on the Euro/U.S. Dollar (EUR/USD) currency pair is impressive, gains could be swiftly surrendered today if NFP meets or exceeds expectations. From a technical standpoint, the EUR/USD remains trapped in a wide 150 pip range. Bears remain in control below the tough 1.0650 resistance.

Commodity spotlight – Gold
Gold has been sold off incessantly this week with prices crashing below $1,200 as speculations heighten over the Federal Reserve raising U.S. interest rates this month. Bears have exploited the Dollar’s stability to pressure the yellow metal further during trading on Friday as prices currently trade around $1,195. With gold’s sensitivity to U.S. interest rate hike expectations reaching shocking levels this quarter, more downside could be expected as expectations mount over the Fed raising US rates repeatedly in 2017. Although risk aversion from the political uncertainty in Europe, Brexit woes and Trump developments could support the metal in the longer term, bears remain in firm control this month. From a technical standpoint, the zero-yielding metal is firmly bearish on the daily charts and a solid NFP report this afternoon could encourage a steeper decline towards $1,190 and potentially lower.

About the Author

Lukman Otunuga is an FXTM research analyst