Forex Fundamental Analysis March 5 ~ 10, 2023

We have many high-impact releases scheduled for the week, so prepare to stay on the sidelines before these major news releases and only trade when there is a reason to.

Tradable news events of the week:

The RBA Interest Rate is a monetary policy decision made by the Reserve Bank of Australia (RBA) to determine the interest rate at which banks can borrow or lend money among themselves. This decision has significant implications for the overall economy, as changes to the interest rate can affect inflation, employment rates, and economic growth. Accordingly, the RBA typically meets on the first Tuesday of every month to discuss and announce any changes to the interest rate.

US ADP Nonfarm Payroll is a monthly report released by the Automatic Data Processing (ADP) company that estimates the number of jobs added or lost in the private sector in the United States during the previous month. This report is based on data from approximately 400,000 US businesses and covers about 24 million employees. The US ADP Nonfarm Payroll report is closely watched by investors, economists, and policymakers as it provides insight into the health of the U.S. labor market and can impact financial markets such as stocks, bonds, and currencies.

The Bank of Canada (BOC) Overnight Rate is the interest rate at which Canadian banks can borrow or lend money to themselves overnight. The Bank of Canada sets this rate. It is considered a key monetary policy tool as changes in the overnight rate can impact inflation, economic growth, and employment rates. The BOC typically meets eight times yearly to discuss and announce any changes to the overnight rate. The overnight rate can also influence other interest rates, such as those for mortgages, loans, and credit cards.

C.A. Employment Change is a monthly economic indicator that measures the net change in the number of employed people in Canada during the previous month. Statistics Canada, a Canadian government agency, collects and releases this data, including full-time and part-time employment. The CA Employment Change report is considered an important indicator of the health of the Canadian economy, as changes in employment levels can impact consumer spending, business investment, and overall economic growth. Consequently, economists, policymakers, and investors closely watch this report as it can influence financial markets such as stocks, bonds, and currencies.

The U.S. Nonfarm Payrolls is a monthly report released by the U.S. Bureau of Labor Statistics that measures the number of people employed in the United States, excluding farm workers, government employees, private household employees, and non-profit organization employees. This report provides insight into the U.S. labor market’s health and is considered an important economic indicator. The Nonfarm Payrolls report includes job gains or losses by industry sector, average hourly earnings, and unemployment. In addition, this report can impact financial markets such as stocks and bonds as investors use this data to gauge the strength of the U.S. economy and anticipate potential changes in monetary policy by the Federal Reserve.

Weekly Forex Fundamental Summary

The U.S. stock exchange began the week with considerable uncertainty, and by month’s end, both stocks and treasury markets had shown a decrease in performance. This was mainly attributed to higher-than-expected inflation figures throughout Europe that raised E.U. interest rates and weaker economic readings than expected in the United States.

Moreover, as investors priced more central bank policy tightening into their decisions, it deepened yield curve inversions while indicating an increased risk of an unfavorable decision occurring on behalf of those making monetary policies.

On Tuesday, the Chinese Purchasing Managers’ Index (PMI) data was more robust than anticipated. At the same time, U.S. ISM manufacturing results missed their projections but included a surprising hike in pricing paid elements. In addition, the following day witnessed weekly unemployment claims lower than 200K for seven successive weeks as well as final Q4 productivity being adjusted downwards together with labor costs climbing significantly higher.

What caused the U.S. 10-year yield to exceed 4% for the first time since November? Federal Reserve and European Central Bank officials have been vocal about rising rates than expected and staying at higher levels longer.

The S&P 500 largely stagnated throughout the week as traders anxiously awaited CPI data and a Fed statement in the following weeks. Risky investments became more attractive on Thursday, however, due to some reassuring commentary from Federal Reserve’s Bostic. According to an ISM services report, this trend continued into Friday upon seeing positive numbers regarding new orders and lower prices paid.

This week, investors had a rollercoaster of reactions to the earnings reports from leading U.S. retailers. Target exceeded forecasts yet provided dismal guidance for 2023; Kohls missed expectations drastically but reasserted long-term objectives; and Macy’s was well-received by shareholders as it reported an impressive Q4 beat, though its outlooks for next quarter were lower than anticipated.

First Solar stocks surged on Friday after reporting impressive profits and robust predictions for the next fiscal year. Volkswagen took the lead with DAX as it reported outstanding numbers from its final financial quarter, announcing that E.V. production was on track to meet or exceed expectations.

Sentiment Forecast

This week, I suggest sitting tight and being vigilant in preparation for the US Non-Farm Payroll report. Such a pivotal news event has the potential to alter the market’s trajectory over the next few weeks; therefore, you can never be too cautious when dealing with NFP.

Last week, the USD lost to most major currencies except the Japanese yen. The losses were mainly just corrections following gains in the previous week, and we haven’t seen any significant movements with the seven major pairs yet. Nevertheless, Wednesday’s ADP report and Friday’s NFP can provide a jolt of power that could push prices in either direction – so be alert!

My strategy to trade GBP and EUR will be range trading, capitalizing on the top and bottom using the market cycle as an entry guide, and staying out of the market during news time.

AUD and NZD are probably best to be left alone for this week unless you have a strong reason to trade them.

Although the Japanese Yen (JPY) might depreciate soon, I advise you to proceed cautiously before selling. If JPY begins to strengthen without any fundamental reason, it’s time to sell on that unexpected rise.