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With Employment in the Rear View Mirror Traders Look toward Inflation

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With Employment in the Rear View Mirror Traders Look toward Inflation

The past week brought on a deluge of economic data which included both manufacturing and service PMI’s along with private and total employment data. The majority of the PMI reports were relatively soft, with the US as the sole country showing sub-components that reflect solid gains.

Friday’s employment report was in line with expectations, but the sub-components showed relatively strength. For example, the average hourly workweek, increased to 34.5 from 34.3 which reflects stronger output from those who are currently in the labor force. The revision to both January and February were also substantial, but not enough to push the US 10-year rate above 2.8%.

Next week traders will turn their attention to inflation data. Inflation should be carefully scrutinised in Europe especially after the recent ECB meetings were comments were made that some members of the central bank were still concerned with overall inflation. Since the ECB does not look at core inflation, the elevated level of crude oil and the recent rise in grains has attracted attention. French and German CPI are scheduled to be released next Wednesday, and given the recent softness in German data, this economic release is likely to be subdued. A softer than expected inflation report will probably be the impetus needed to push the Euro lower.

The EURUSD moved through trend line support and is poised to test the 1.3650 level. Momentum is negative with the RSI moving lower with price action breaking through recent lows. The MACD is also printing in negative territory with a negative trajectory that foreshadows a lower exchange rate.

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