Currency Contest

Volatility Expected to Pick Up As Markets Digest Monthly NFP

Joel Kruger, Currency Strategist, Research Desk, DailyFX

ReportMarkets have been relatively quiet on Friday thus far, with investors seemingly content to allow for some consolidation ahead of the highly anticipated US non-farm payrolls report due out in the North American session. Overall, the reaction to Thursday’s central bank event risk has been rather positive, with officials sending a message that they are addressing the current economic crisis and taking measures to provide as much accommodation and structural reform as needed. The Bank of England made this clear after unexpectedly upping its asset purchase target by GBP75B to GBP275B, while the ECB turned up its liquidity dial for banks, and announced the renewal of its covered bond program, amongst other things. The bank recapitalization talk in the eurozone is also helping to bolster sentiment somewhat, and the Euro has found its way back above 1.3400 thus far.

However, as we wrote on Thursday, any rallies in the euro and currencies in general should continue to be very well offered, with the markets far from out of the woods and these newly implemented central bank measures only reminding us of just how bad things really are. On that note, recent reports cite a tension between Germany and France on whether the EFSF should have limits on government bond purchases. Meanwhile, the saga in Greece lingers on, with the country hanging by a thread as the risk of default still remains quite real, with bailout talks still in progress. Elsewhere, Dexia has been getting some negative attention after the troubled bank was downgraded by S&P.

Japanese central bank event risk hasn’t exactly been a market mover overnight, and this was to be expected, with the Bank of Japan unanimously leaving its call rate target unchanged at a range of 0-0.10%, while refraining from adopting further easing measures. The central bank did however extend its loan scheme for quake hit regions by 6 months to April of 2012. USD/JPY is slightly lower on the day but remains locked in a very tight multi-day range that has been confined mostly to the 76.00’s. In M&A related activity, EUR/JPY has been getting some support after Sony was rumored to be nearing a deal to buy out Telefon AB L.M. Ericcson’s stake in their mobile phone joint venture. 

Joel Kruger has over 10 years of experience in the currency markets in addition to his background in law.  Blending fundamental and technical analysis, Joel’s reporting considers a variety of economic and financial cross-currents to give trader a comprehensive assessment of forex market activity.  Joel covers the European and Asian market sessions for DailyFX.