Fundamental Report – March 7, 2013: Markets Look to US Non Farm Payrolls, ECB Rate Decision

The US Dollar continues to push higher against most of the majors as investors position themselves into the end of the week before key event risks. The first of these will be seen with the monetary policy meeting from the European Central Bank (ECB), where most analysts are expecting a “no change” decision, keeping rates on hold at 0.75%. With no change expected, some traders might be wondering why this event risk is significant. First, it is important to understand that even if rates are held steady, the press conference conducted after the meeting will give traders a much clearer idea of the commitment the ECB plans to show with respect to its current stimulus programs.

If the ECB shows an optimistic stance on the wider economy, investors will start to price in the possibility additional stimulus programs will not be required. An outcome like this would be Euro positive (as it is less likely to see additional reductions in interest rates). On the other hand, we might see the ECB express concerns over GDP growth prospects and the state of the labor market (Unemployment has reached all time highs in some European nations). An announcement like would be Euro negative, as the implicit suggestion would be that current programs are not large enough and that the Eurozone will need additional stimulus.

Major Data Event for the Week: Non Farm Payrolls

The short term trend is upward for the US Dollar, as the Beige Book release was broadly positive and this is supporting the case that a recovery is being seen in the US economy. Beige Book data tends to be better for assessing long term trends, but on a monthly (shorter term) basis, one of the best economic indicators to use is the Non Farm Payrolls report, which will be released just before the stock market open on Friday. Early precursors for this report are showing positive results, with the ADP numbers showing a very strong 198,000 private jobs added for the month, and the numbers for the previous month were revised higher as well (and are now recorded as 215,000). Markets are likely to stall into this number, as investors usually show reluctance to commit to new positions before major reports like this are released.

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