6 March 2023

Weekly Outlook - Eye on NFP for Clues Ahead of Next FOMC

Technical Analysis

Surprisingly good PMIs out of China boosted risk appetite last week, with attention now turning to central banks and the Nonfarm Payrolls. Will the jobs market cool off or add more pressure on the Fed?

4 Top Macros for the Week Ahead

  • US NFP Back to normal

  • RBA expected to hike by 25bps

  • BOC seen keeping policy steady

  • Last BOJ meeting for Kuroda

Nonfarm Payrolls to Come Down

Last month's NFP blew past all expectations, but the vast majority of economists agree that it was a fluke caused by a technicality in how the numbers were counted. The forecast is that Nonfarm Payrolls will return to levels seen in the last half of 2023, which were slightly above average, as the US economy continues to build back jobs lost during the pandemic. The unemployment rate is also expected to return to 3.6% after the unexpected drop to 3.4% last month. 

A miss or a somewhat neutral print could see USD/CHF pullback to 0.9250, validating the momentum exhaustion and a terminal wedge pattern. Breaking lower will expose the 61.80% Fibonacci at 0.9205, the break of which may lead to a full-blown reversal. In any other case, remaining above 0.93010 could trigger long positions for an upward spiral towards the 0.9500 handle, with a likely restriction by the peak of 0.9442.

Tradingview Chart: U.S. Dollar / Swiss Franc

RBA Expected to Raise by 25bps

After the surprising build in inflation during the final quarter of last year, the RBA was forced to raise rates at the last meeting. Since then, there hasn't been any inflation data to change the outlook. But job numbers so far have affirmed the narrative that the Reserve Bank needs to take more action. The expectation is that the RBA will also suggest another 25bps coming at the meeting after the next.

AUD/NZD has bounced off $1.0800 after sliding into oversold territories and forming divergence. The force has been strong enough to retest the RSI in the opposite direction should the RBA imply another hike might be coming at the next meeting, bringing prices near $1.0945 or perhaps even $1.1000. Any sort of disappointment could have a counteractive effect on the pair, but unlikely to trigger a selloff below $1.0705. 

Tradingview Chart: Australian Dollar / New Zealandian Dollar

BOC to Hold on to the Pause

Inflation in Canada has continued to come down despite the large job numbers reported last month. Canada won't provide its unemployment data until after the BOC meets this time around, but that's not expected to change the market's outlook for policy. The minutes from the last meeting showed that the BOC is more worried about the economic situation than inflation, so the consensus is that policy will remain on hold.

The impact of a neutral policy could encourage further bids for GBP/CAD, managing a break past 1.6520 and increasing the chances of an extended leg towards 1.6600. Momentum reveals conflicting signals, however, with the low of 1.6080 prone to revisits due to either a hawkish BOC or a weak pound. The latter could provoke bearish bets towards the round 1.60 threshold should 1.6220 gives in early in the week.

Tradingview Chart: British Pound / Canadian Dollar

BOJ Unlikely to Go Any Unusual Way

The last meeting of the BOJ to be chaired by Kuroda is expected to reflect his governorship so far: No major change in policy as expected, with ultra-easing to remain in place. It's also seen as an opportunity to announce the confirmation of Ueda as the new governor and leave it to him to supervise any changes going forward. The BOJ has recently been rigorously defending the limits of its YCC, despite recent challenges, suggesting the policy will remain in place for some time.

Despite the yen being weak as of late, AUD/JPY might have hit a barrier at 93.06, the top might be locally in. Momentum is contained within a narrowing range, suggesting a diagonal or triangle pattern may be due to form. If BOJ confirms the market's expectations, bulls could enact a short-term trend en route for 94.00. On the flip side, losing the 38.2% Fibonacci at 90.76 could be the catalyst for further declines towards the floor at 90.00.

Tradingview Chart: Australian Dollar / Japanese Yen

4 Top Stories in Review 

  • Chinese manufacturing PMI, both the official and private measures, jumped much more than anticipated, giving a boost to commodities

  • ECB minutes suggest the central bank will keep to its preset course of raising rates at a steady and not aggressive pace, weighing on the euro

  • EU and UK reached a tentative deal to resolve the Northern Ireland Protocol issue, helping give a boost to the pound

  • US durable goods orders disappointed but were offset by better-pending home sales data, setting the dollar off to a weaker tone near the start of the week

Major Calendar Events 06 - 10 Mar (GMT) 

Source: Invesing.com

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