Date: 05 Jan 2018

Going into Friday’s US jobs data, the currency market already knows from the Fed’s own forecasts that the US central bank expects to raise rates three times in 2018. The markets are currently expecting the first of those to occur in March. The implications of that are worth pondering from a currency perspective. Despite the fact that key US economic data is to be released on Friday and despite market awareness of the Fed’s present rate hike intentions for 2018, the US dollar was trading on the backfoot versus the euro (EURUSD) on Thursday afternoon.

Would it be fair to conclude the currency market has decided to run long of euro/dollar into Friday’s US data? The relative strength of the euro might suggest that but traders will have to make their own judgements. But if the currency market has collectively decided to be long of euros versus US dollars into that data, then presumably the currency market has already thought about what might happen if the data is so strong as to lend itself to a stronger greenback (which would normally prove uncomfortable for traders who have taken the opposite stance). If on reflection, and while acknowledging that US non-farm payroll data is often unpredictable, the price of the euro versus the US dollar remains elevated into Friday’s data, traders could rationally interpret that as suggesting a collective market mindset that is positive towards the euro rather than primarily negative towards the US dollar. And that would have implications for the euro complex as a whole (EURCHF, EURGBP, EURJPY etc).

Written by Neal Kimberley, External Currency Analyst.