Weekly FX Roundup: US jobs market shows continued improvement

By Gaurav Kashyap, Alpari ME DMCC

Friday's Nonfarm payrolls report was the headline piece of data this past week and it continued to impress. With the bar already set very high on the back of a solid February reading, March's Nonfarm payroll reading showed a continued improvement in the US jobs market - the overall reading showed hiring increased 216K (analysts expected an addition of 190K), with the unemployment rate dropping to 8.8%, down from a previous reading of 8.9%.

Hiring in the private sector showed that 230K jobs were added compared to expectations of 208K jobs being added. Initially the news was digested by Dollar traders as positive for the Greenback - an improving jobs report would surely call for the end of QE measures from the Fed by this summer, and further cement the hawkish rhetoric in a bid to hike rates. But judging by the weakness in the Greenback throughout the later part of trading on Friday, it was the buildup of risk appetite following the much improved report which led the Dollar to give back its gains and end the session on a weaker note.

US equity markets were a big beneficiary of the report, with the Dow closing the week higher by 1.3%, the Nasdaq composite closing 1.7% higher and the S&P 500 closing the week 1.4% higher. Friday's bullish closing as already had its effect on global equity markets - seeing the Nikkei close Monday's trading session in the green (higher by 0.11%) and should see the positive momentum carry through into Europe.

Ireland bank stress test offers boost to Euro

Despite all the negative news that has been emerging from the Eurozone over the past few weeks including debt downgrades, bank rating cuts, changes in the German political landscape, and what seemed like halted progress towards further developing the Eurozone's bailout fund, Thursday's better than expected stress test of Ireland's banks was a further boost to EURUSD bulls. The stress tests revealed that €24bn was required in additional recapitalization needs, well below analysts' expectations who estimated close to €35bn would be required.

Further supporting a higher EURUSD was sentiments the ECB will be looking at a rate hike this week. The central bank meets on Thursday to decide rates and the markets are poised for an increase in the rate by 25 basis points to 1.25%. A lot of the sentiment of a rate hike is already priced in and this will see the EURUSD find strong support in the trading sessions leading up to the announcement. Of course the subsequent comments by Trichet will be closely monitored, as a scenario whereby they hike rates by 25 basis points with no signs of definite future rate hikes would be seen as a disappoint.

On the flipside, an unexpected rate hike of 0.50% would do much to confirm the upward trend, while a hike of 0.25% with signs of uninterrupted hikes will keep EURUSD supported. In the lead up to Thursday's announcement we will also see the release of Eurozone retail sales on Tuesday and the Euro-zone GDP on Wednesday.

Along with the ECB, we also await the rate decision of the Australian Central Bank who are expected to keep their rates on hold at 4.75% and the rate decision of the Bank of England, who are also expected to hold rates at 0.50% with no adjustments to their asset purchase target of £200bn. But perhaps the headline event of the week will be the release of the FOMC meeting minutes late Tuesday which will give further insight to upcoming moves by the Federal Reserve.

Following the last interest rate decision, Fed officials expressed concerns over inflation and Tuesday's minutes will show how realistic an end to QE2 will be in June. Anything less hawkish will see the US Dollar continue its slide against the Euro.