Change The Month, Change The Trend?

It seems in the recent past, short-term trends in the foreign exchange market change around the monthly US jobs report. The euro held support last week near $1.1700, and the greenback held below JPY111.00.  It is difficult to read much into the price action due to the month and quarter-end adjustments, which also is the end of many governments and corporate fiscal years. 

Market conditions were thinned by the Good Friday holiday, so we should not put too much stock on the limited reaction to the stronger than expected US employment data.  

At the same time, the dollar bulls may be puzzled by the lack of a more positive response to news that US jobs growth last month was nearly half again as much as forecast (916k vs. Bloomberg's survey median forecast of 660k).  Moreover, the job growth in January and February was revised up by a combined 156k.  Since the FOMC meeting, more than a million jobs have been restored, a welcome down payment, leaving it still about 8.5 mln less than at the end of 2019.  It seems reasonable to assume that well more than another million jobs will have been restored by the time the FOMC meets in June and adjusts its forecasts and guidance.  Will the return of over 2 mln jobs meet the Fed's threshold of "substantial progress" to adjust its bond-buying?  

The price action review in the foreign exchange market shows that this could be a near-term inflection point, which we have sensed is coming.  However, there is still another test pending about how much of the reflation trade is indeed discounted.  That other shoe to drop is inflation.  Last year's negative CPI prints will be dropping out of the year-over-year measures.  The base-effect will make for strong inflation readings starting with the March CPI (April 12).  

Here is a snapshot of how we see the technical condition of the dollar as April gets underway.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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