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Greenback extend gains before US jobs

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Today’s key event is the US jobs data. Amid good ADP read on Wednesday, the consensus for the NFP is a strong 235K (vs. 257K last month) with lower unemployment rate (5.6% vs. 5.7% last) and higher wages in February. The US 10-year bonds stabilize at about the 100-dma (2.1162%), sign of increased expectations for the Fed rate hike to happen sooner rather than later (June is the earliest we see).

Peter Rosenstreich – Head of Market Strategy: “Today’s jobs reports will solidify expectations for this month’s FOMC rate decision meeting and accompanying statement. We suspect that any NFP read above 220k (near 235k con.) will keep outlooks for a shift in language alive. Following the rapid expansion of payrolls, wage inflation is just around the corner. A solid read today will increase the likelihood that the FOMC removes “patient” from the statement, signaling a June hike is unequivocally on the table. A sturdy payroll release should push EURUSD below 1.10 psychological support toward bearish extension target at 1.0765”.

USD/JPY advanced to 120.40 in New York yesterday (a stone’s throw lower than Feb 11/12th double top (120.47/48). The bias remains positive with good USD appetite. US jobs data will determine whether it is time to pull out the resistance and challenge Dec’14 high (121.85). Large vanilla calls above 119.80/120.00 should limit the downside before the week’s closing bell.

USD/CHF extended gains to 0.9750, EURCHF holds ground above the 21-dma (1.07445) still choppy on the upside with globally negative EUR sentiment.

In line with the consensus, the BoE and the ECB maintained status quo in March. While the BoE decision gathered little attention, the ECB President Draghi’s speech triggered price action in the EUR-complex. EURUSD first rallied to 1.1114 on favorable inflation expectations and economic outlook, then tumbled down to fresh 1-year low of 1.1006 as 1. ECB said the QE may extend beyond Sep’16 if needed, 2. ECB will buy negative yielding bonds up to deposit rate and 3. Greek banks are in good shape yet progress on bailout is needed to avoid a situation where the country would not fulfill the conditions to become eligible and therefore would be left out of the QE program. The sentiment in EUR remains negative while the failure to break below 1.10 psychological support will likely encourage corrective bids before the US NFP read in New York today. A strong read should trigger fresh sell-off in EURUSD and challenge the 1.10 support for the second consecutive day.

In Brazil, USDBRL traded above 3.00 (hit 3.0216) for the first time since 2004 on broad USD appetite. February inflation is due today and is expected to accelerate to 7.56% from 7.14% last. Higher inflation keep the BCB-hawks alert, however the selling pressures in real should remain pre-NFPs. Moving forward, although the political tensions are long-term issue, temporary cool-off will create window for tactical long carry positions (with relatively interesting rate spread amid additional 50 bp hike on Wednesday meeting).

In Turkey, political tensions will certainly not cool-off to let the lira breath anytime soon. Walking into 2015 general elections, the gloomy economic situation can only push President Erdogan and the government to intensify their call for lower interest rates. Turkey needs growth and growth requires credit. The equation is simple to vehicle, especially with the rising unemployment and the “under the control” inflation (thanks to lower energy prices). We keep our bearish view on lira and look to strengthen our short TRY position on potential relief.

Besides US jobs (February NFPs, unemployment & participation rate, earnings), traders watch the SNB’s FY earnings and February FX Reserves, German and Spanish January Industrial Production m/m & y/y, French January Budget and Trade Balance, Spanish January House Transactions y/y, Swiss February CPI m/m & y/y, Swedish February Budget Balance and Average House Prices, Norwegian January Industrial Production and Manufacturing m/m & y/y, Italian January PPI m/m & y/y, Euro-Zone’s 4Q Gross Fixed Capital q/q, Government Expenditures q/q, Household Consumption q/q and 4Q (Prelim) GDP q/q & y/y, Canadian January Building Permits m£/m and International Merchandise Trade, Canadian 4Q Labor Productivity q/q, US January Trade Balance and Consumer Credit.

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