According to economists at ING, the direction and volatility in the foreign exchange market continue to be significantly influenced by data from the United States. They suggest that the upcoming Nonfarm Payrolls data on Friday could potentially confirm whether the spike observed in January was an outlier or a sustained trend.
Waiting for a volatility shake-up
The volatility of the foreign exchange market remains closely tied to US data, and this week’s focus is on the February jobs report to assess the sustainability of the impressive January figures. Leading indicators like ISM and NFIB numbers are anticipated to guide expectations for Friday’s release. According to our US economist, the projected payroll figure is around 200,000, aligning with consensus and exceeding the 185,000 consensus forecast for January. Investors have adjusted their outlook upward for the US labor market, and a return to the 200,000 range would establish a more stable trend, aligning with expectations of potential summer cuts by the Federal Reserve.
Fed Chair Jerome Powell is scheduled to testify before Congress on Wednesday and Thursday. A shift towards a dovish narrative seems unlikely in light of the recent inflation data. Instead, a cautious and wait-and-see approach is expected to be reiterated. However, its impact on the markets might be limited due to the close proximity to upcoming jobs data.
The activity on the US calendar kicks off on Tuesday. Currently, the developed markets appear relatively calm, with the potential for continued low-volatility price movements akin to last week. Nevertheless, there is a slight inclination towards upside risks for the Dollar leading up to the US payrolls. The DXY may discover robust support above 104.00 during this period.
