US Dollar To Be Driven By Labor Market

April 1, 2014 in Forex Fundamentals and News

For the most part, forex markets have had a relatively slow week but when we look at the data calendar in the closing session on Friday, there is little reason to expect that this lack of volatility will continue.  The March Non farm Payrolls number will be the final highlight of the week, and the implications for its results will likely be seen in most of the major asset classes.  In precious metals, and for those trading assets like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV).  So far this year, we have witnessed a rather meager rally in the metals space and in order for this to continue we will likely need to see a round of risk aversion and a flock to historical safe haven protection.  This essentially means that we would need to see a weaker than expected result in the Non Farm Payrolls release.

Market expectations are calling for a monthly increase of 196K new jobs for March, which would be a relatively encouraging number as it would mark an improvements from the 175K new jobs that were posted during the previous month.  But a weaker than expected number here would likely bring a drag on the US Dollar and assets like the PowerShares DB US Dollar Index Bullish ETF (UUP).  By extension we could also be likely to see declines in stock markets and the SPDR S&P 500 Trust ETF (SPY), as investors would be encouraged to take some gains in stock market longs while market valuations would still be trading at elevated levels.  Oil markets would also meet some selling pressure in a negative scenario, with the United States Oil Fund LP ETF (USO) avoided on the prospects of weakening demand in both consumer and industrial sectors.

Market News to Dictate Direction

For all of these reasons, it will be highly important to monitor upcoming developments in the latest forex news, as this will be the key driver of sentiment not only on Friday but likely for the following week as well.  Investors and traders alike are still looking to obtain an accurate gauge on how exactly the US Federal Reserve is likely to proceed in its tapering programs.  This continues to be one of the central factors in determining what the likely growth prospects will be for the US economy.

Any indication that the economy remains under pressure will weigh on the Dollar, despite its already cheap levels when compared to near term averages.  If these prospects to play out to the downside on Friday, traders will need to have some sense of which assets to buy and which to avoid.  Expect market volatility to slow into the US session but this will all end once the NFP release is made public.  Keep a close watch to the national unemployment rate, as well, as this has been one of the major focal points for the Fed in determining its next likely direction.


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