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XTB TRADEBEAT

What to expect from the ECB & NFPs

Summary:

  • The ECB has no reason to become more hawkish
  • Wage growth the focal point of Friday’s NFP report
  • EURUSD remains in upwards trend
  • US500 stuck in consolidation, will correction be continued?

While this week’s focus is rightly on the simmering trade wars sparked by Trump, traders will also have an eye on key calendar events ahead: the ECB meeting and NFP report. We analyse these events and look at relevant markets: EURUSD and US500. 

The ECB decision (Thursday, 12:45pm BST, conference 1:30pm)

The ECB is set to stick with its reduced version of the QE program until the end of September and it is then widely expected to phase it out throughout the final quarter of the year. The question for the markets is when the Bank will start increasing interest rates. There was speculation back in January that some members wanted to prepare  the market for higher rates but minutes from the last meeting seemed to suggest that these voices were contained. The ECB will present the latest macro projections, but it has few reasons to sharpen its rhetoric. If anything the EMU data has been mixed as of late. The PMI cooled down, albeit from very elevated levels. Inflation was somewhat disappointing in February. Draghi has all the reasons to stay cautious during his post-meeting conference. 

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European PMIs have deteriorated lately, removing pressure from the ECB to upgrade its rhetoric. Source: Macrobond, XTB Research 

The NFP report (Friday, 1:30pm BST)

Expectations ahead of this NFP report are quite high. The  consensus sees employment gain close to 200k and the unemployment rate down to 4%. Wage growth will be decisive, though. Even though the consensus sees somewhat lower growth than in January (2.8% to 2.9%), achieving it would be a big feat nonetheless. The reason is a high statistical base from last year. Look at the chart below - in January 2017 wages grew by just 2.4% so it was not that hard to produce 2.9% in 2018. However, February 2017 was quite solid with wage growth at 2.7% so another 2.8% this year will be relatively tougher to achieve. If wage growth is at this level or higher markets will become convinced that higher inflation is just a matter of time. Nonetheless, the bar ahead of this report is high. 

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The base effect for wages will be much higher so even achieving 2.8% consensus will be a success. Source: Macrobond, XTB Research 

EURUSD

EURUSD remains well within the upwards trend after defending the key support zone of 1.2160/1.2215 and fending off negative pressure from the double top formation. The key target for bulls is breaking the 1.2520 resistance but that would probably require either a hawkish ECB in addition to a weak NFP report, or another outburst from Trump. Note that the 150-day average runs along a lower limit in an upward channel, solidifying trend support.

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Source: xStation 5

US500

 The US market is stuck in consolidation following a sharp correction in the first half of January. When you look at the three previous major correction in this bull market they all:
- were deeper than 14%
- had a clear double bottom on a W1 interval
- crossed a 75-day moving average very substantially
None of these conditions have been satisfied so far and it seems like bears remain in the game. 

link do file download linkSource: xStation 5

 

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