The next FOMC meeting on monetary policy will take place on March 20 and the markets are actively looking for signs on which the rhetoric of the Fed's leadership over the next period will be formed. Recall that in January, the Fed confirmed the "December theses" by Jerome Powell and took a pause in the rate hike cycle, which was immediately reflected in the growth of stock indices around the world.
The February Labor Market Report scheduled to be published on Friday is key to choosing the direction of the markets for the next two weeks. If he is confidently strong, the Fed may announce the resumption of the rate hike cycle, which will immediately lead to a reaction in the markets towards increased demand for defensive assets and a fall in stocks.
Recent evidence indicates that problems continue to pile up. The US foreign trade deficit increased to a record level over the past 10 years in 2018 and the record levels of trade deficit with China, Mexico, and the EU were updated. Directly in December, foreign trade deficit amounted to 59.8 billion dollars and this is the maximum since October 2008.
Protectionism as a form of state policy was actively pursued by the White House administration, but it has not yielded any results so far. The growth of stock indices is still a consequence of expectations solely related to the cessation of tightening of the monetary policy of the Fed and not with the reforms of Trump, which can adversely affect the political image of the Republican Party and worsen its position.
In this regard, the upcoming conclusion of a trade transaction between the US and China is of particular importance, which will allow the US to straighten out the commodity balance somewhat and will give additional reasons for the growth of the stock market, that is, including the growth of investment.
As for nonfarm, the expectations remain neutral. Following the ADP report published on Wednesday, new jobs equivalent to 183 thousand in February were created. This is already quite expected after a record of 300 thousand in January.
Players do not expect a significant increase in new jobs from tomorrow's report but rely on the sustainability of growth in average wages. If the real results turn out to be better than expected, then the Fed will be able to announce the resumption of the rate growth cycle after the end of the pause, which will immediately lead to an increase in the dollar index. The forecast for non-pharmaceuticals was adjusted from 190 thousand to 180 thousand after the release of the ADP report, which generally suggest an increase in the dollar after the publication of tomorrow's report.
EUR / USD pair
The consolidated forecast for the outcome of today's meeting of the ECB suggests lowering forecasts for inflation and the economy in order to get more variability in the formulation of economic steps and, first of all, to have grounds in continuing the TLTRO program.
The improvement in the economic indicators of the eurozone over the last month cannot serve as a basis for complacency, indicating an obvious weakness of the economy since the prolonged recession in 2018. It is better to have a program ready to support it, with which this reason prompted the ECB to have a regular meeting.
A significant decline in forecasts implies both an increase in volatility and a drop in the euro at the end of the day. The EUR/USD decline to the support of 1.1233 quite likely targets the long-term minimum of 1.1214.
GBP / USD pair
The pound was under pressure again after reports that the negotiations held on Tuesday about the status of the border between Ireland and Northern Ireland ended in vain. The meeting between the Attorney General of England and Wales, Geoffrey Cox, and the Brexit Minister for Stephen Barclay, as well as the Brexit negotiator for the EU, Michel Barnier, lasted more than three hours and ended without result. May's positions before voting in parliament on March 12 deteriorated, which simultaneously increased the likelihood of leaving the EU without an agreement.
This scenario is traditionally regarded as negative for the pound, and therefore, the likelihood of GBP/USD growth today is low. The resistance of 1.3198 is unlikely to be passed and the pound will tend to approach the lower limit of the range to 1.3096.