The Most Important Data Point in FX

Market Drivers February 4, 2019
Dollar ekes out more gains
China on holiday for the week
Nikkei 0.46% Dax 0.06%
Oil $55/bbl
Gold $1312/oz.

Europe and Asia:
AU AUD Building Permits -8.4% vs. 1.8%

North America:
No Data

With China on a weeklong break for Lunar New Year holiday volumes in Asia and early Europe were subdued, but the dollar managed to eke out further gains on the back of stronger than expected NFPs last Friday.

USDJPY was the leader on the board with the pair rising to 109.90 by early London dealing with long squarely eyeing to knock out the key 110.00 level as the day proceeds. Friday’s US labor data was much stronger than forecast indicating that US growth remains steady despite an alarming slowdown in Europe and Asia.

Friday’s news is unlikely to nudge the Fed from its current neutral stance, but it did relieve worries that US economy may be following both Europe and China where the slowdown in economic activity has been much more pronounced. As several analysts have pointed out, the World Manufacturing PMI dropped sharply in January and now stands at a level that suggests a 6-12 month slowdown in activity. However, if the data does not deteriorate any further, the worst of the risk off flows may be behind us and while it may take the Fed another quarter to resume monetary tightening the markets will begin to anticipate those moves much faster than that. That’s the PMI/ISM data from G-20 universe could be the most important data point for the next few months and will determine if USDJPY can break above 110.00 or sink below 105.00 on fears of synchronized global recession.

For now, the afterglow of Friday’s NFP results continue to support the trade and the pair looks ready to challenge the 110.00 figure in an otherwise quiet game.