Dollar Marks Time Before ADP Report, ECB Meeting and Jobs Data

  • Trade deficit is widest in 5 years; Wilbur Ross cites weak FX
  • Dollar-yen may orbit 114.00 until Friday amid option pull

The dollar was little changed as traders waited out the event risk stacked in the latter half of the week.

The Bloomberg dollar index rose less than 0.1 percent to 1,245.60, just above its 100-day moving average, as losses against the Mexican peso and the Korean won offset advances elsewhere. The dollar relinquished slender gains after Commerce Secretary Wilbur Ross said that the dollar was not strong, so much as other currencies may be weak. Ross’s remarks came shortly after the U.S. reported that the January trade deficit widened to $48.5 billion.

  • FX trading flows were quite muted as market participants sought fresh trading catalysts that may come either from the ECB meeting or, more likely, Friday’s U.S. employment report, traders on both sides of the Atlantic said.
  • While euro area economic data shows a mostly improved tone, traders expect that the ECB will maintain its steady policy path at least through the French presidential elections, if not the German election in October. Economists surveyed by Bloomberg expect the bank to maintain its rigid stance at least through June before changing its tune. Rate hikes are not likely before next year, the economists say.
  • With a March rate hike from the Fed seen as a near certainty, traders will use the Wednesday ADP employment report to fine-tune expectations for Friday’s job data, which may, in turn, provide clues into the timing of any further rate increases; if job creation remains near the recent monthly pace ~200k, and if hourly earnings show gains close to the expected 2.8% annual pace, the Fed may need to explain whether its expected number of hikes in 2017 remains at not more than 3, traders say.
  • EUR/USD is trading in familiar territory near 1.0570; it has been trapped close to 1.0600 for most of the past month as the USD loses traction despite rising Treasury yields that have outpaced modest increases in comparable EGB yields.
  • EUR bids are in place below 1.0560 but it’ll take a break under last week’s low ~1.0495 for momentum to really pick up, and then only if traders and macro players perceive the metrics have shifted in the dollar’s favor, something which could come with more clarity on U.S. fiscal stimulus plans.
  • USD/JPY is trading near its high at 114.15, with the pair supported by a rise in Treasury yields as bond traders deal with a second day of heavy corporate bond issuance as well as the start of a Treasury auction cycle that began with today’s 3-year note auction; the pair is trading below the Ichimoku cloud for 2nd day, while holding above Monday’s 113.56 low that may offer nearest tech support.
  • Offers are in place at 114.15/20 and again ~114.40 while bids are positioned under 113.50, traders said.; pair may feel the pull of a large 114.00 expiry that rolls off on Friday.
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