Markets focus on U.S. non-farm payrolls amid light economic events amid holiday holiday

2023-04-07 13:49:17

Markets around the world were closed for Easter, and volatility was limited due to light economic events. Later, in thin trading conditions, a key economic report will set the stage for larger moves in currencies, including wide range moves.

U.S. economic data showed that the number of Americans filing new claims for unemployment benefits fell to 228,000 last week, with the previous value revised down sharply to point to a looser labor market. The previous week's figures were revised up to 48,000 more than the previous value. Continuing claims rose 6,000 to 1.823 million in the week ended March 25, the highest level since December 2021. The data showed that the number of claims continued to rise. This points to a further slowdown in the economy. That dampened people's mood a little bit. The focus now turns to this Friday's US non-farm payrolls report.

According to data released this week, the labor market is starting to look less tense, but the non-farm payrolls will have the final say on the employment situation. Non-farm payrolls are expected to increase by 240,000 in March compared with an increase of 311,000 in February. The unemployment rate will remain at 3.6%. Earnings will also be closely watched. Over the past year or two, non-farm payroll growth has been more than expected than missed. If the data continues to fall short of expectations, it will create signs of a weak U.S. economy, reinforcing the view that the Fed will reverse policy direction. There will be large fluctuations in the market before and after the announcement of non-farm payrolls. At that time, the fluctuations in the foreign exchange market will be high.

Stronger-than-expected non-farm payrolls data could provide headwinds to the dovish bias in Fed policy expectations, sparking renewed dollar strength in the process. Potentially mixed liquidity conditions could amplify market volatility. The weaker-than-expected or largely flat data confirms that the Fed's dovish rhetoric could maintain the current trend of dollar weakness.

EUR/USD

The euro was the best-performing G10 currency on Thursday, with EUR/USD inching up 0.2% to around the 1.0931 level. Germany released another strong data, with industrial production rising 2% in February. The outlook for EUR/USD is neutral to bullish.

On Friday, the Good Friday holiday in the European market in early trading, the EUR/USD fluctuated around the key upward resistance of 1.0930. In this case, EUR/USD is on track for a third straight weekly gain, while staying above the 100 SMA and a key support line extended since March. However, cautious sentiment ahead of the US non-farm payrolls data appears to be challenging EUR/USD.

GBP/USD

GBP/USD fell 0.1% on Thursday (April 6) to close at 1.2441.

In Asia on Friday, GBP/USD fell to 1.2430, extending its two-day decline. During the period, GBP/USD pared daily losses after four weeks of weekly gains, while falling from a one-month uptrend channel high.

After the GBP/USD hit a nearly one-year high of 1.2525 on Tuesday, there was a slight correction for two consecutive trading days. With no major data released in the UK itself, traders focused on this week's non-agricultural data in the US, which will be a key factor affecting the Fed's next interest rate decision and is likely to cause greater volatility in the market. As for the UK itself, with UK inflation unexpectedly jumping to 10.4% in February, investors widely expect the Bank of England to raise interest rates further. Expectations of rate hikes are expected to lend some support to sterling as it makes domestic sterling-denominated fixed-income investments look more attractive. But in any case, the trend of the pound still depends on the face of the dollar. Therefore, pay close attention to the results of tonight's US non-farm payrolls data.

USD/JPY

USD/JPY ended the day on a three-day losing streak, staying out of the danger zone and approaching the 132.00 area, buoyed by a modest rebound in U.S. Treasury yields. Bank of Japan Governor Haruhiko Kuroda's term ends on Saturday.

Japan's Finance Minister (FinMin) Shunichi Suzuki praised the work of outgoing Bank of Japan (BoJ) Governor Haruhiko Kuroda on Friday morning. "The policies introduced by Kuroda helped create a situation in Japan where Japan can no longer be described as being deflationary," Suzuki said.

Following the above news, USD/JPY pared the rebound recorded the previous day and fell 0.10% to trade around the session low of 131.61. It is worth noting that, except for Japan, due to the Easter holiday in major markets, USD/JPY remained active and consolidated recent gains, and is expected to end the week in decline.

USD/CAD edged higher on Thursday, but the loonie outperformed the Australian and New Zealand dollars after the Canadian jobs data. Canada added 35,000 in March, stronger than expected. Next week, the Bank of Canada is expected to stay on hold. USD/CAD is trading below 1.3500.

AUD/USD fell for the third day in a row, hitting its lowest daily close in a week around 0.6670. NZD/USD fell across the board, with NZD/USD suffering its biggest drop in weeks to settle below 0.6250.

The Mexican peso outperformed among emerging market currencies, with USD/MXN shedding 0.25% to hit 18.25. The Reserve Bank of India unexpectedly left interest rates unchanged at 6.5%. USD/INR settled at 81.80, its weakest level in a month.

Spot gold fell further, but still above $2,000, while spot silver consolidated below $25.00. Crude oil prices continued to consolidate, holding on to an 8% weekly gain.

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