US February non-farm payrolls released at the end of last week put the finishing touches to a week that saw risk appetite continue to improve each day. There were no big surprises from the various central bank decisions including the RBA, BoE and ECB last week though Malaysia’s central bank did surprise by hiking 25bps. The RBA’s 25bps hike was a close call but in the event the Bank delivered a 25bps hike too.
Sentiment towards Greece has improved in the wake of the announcement of fresh austerity measures by the Greek government, which provoked a short covering EUR/USD rally from around 1.3435 lows though the EUR never really showed signs of embarking on the sort of rebound the massive short EUR speculative position had suggested.
US jobs report revealed that non-farm payrolls dropped by 36k and was all the more remarkable given the potentially very negative impact of severe weather distortions to the data. The data provides the setting for a firm start to the week in terms of risk appetite which will likely put the USD under a bit of pressure into the week.
This week’s events include central bank decisions in New Zealand and Switzerland. The RBNZ has already indicated that it sees no reason to raise interest rates in H1 and an unchanged decision will come as no surprise to the market. The NZD offers better potential for appreciation than the AUD in the short term and I suspect that a “risk on” tone at least early in the week will keep the Kiwi supported.
The SNB in Switzerland is also unlikely to offer any surprises in its rate decision with an unchanged outcome likely. It appears that the Bank has take a somewhat more relaxed tone to the strength of the CHF and any comments on the currency will be scrtunised for hints of intervention.
It probably isn’t much of a shock to expect Greece to remain in the spotlight this week as markets continue to deliberate whether Greece needs financial aid and if so, whether it will be provided by EU countries such as Germany and/or France, at least in terms of some form of debt guarantee.
Further tensions within Greece, with more strikes in the pipeline will test the resolve of the government to carry through austerity measures while likely acting as a cap on any EUR upside over coming days. I still think EUR/USD 1.3789 is a tough nut to crack.
Meanwhile, GBP/USD looks like it will find it tough going to gain much traction above 1.50 with political uncertainties in the form of a likely hung parliament as well as what looks like various efforts by the BoE officials to talk GBP down, likely to prevent an real recovery.
ECONOMETER 