Quiet, Flat, Cautious, and Risk-Averse Markets Maintaining Familiarity

USD

After a quiet day in markets, the U.S. Dollar’s main source of excitement this morning is further consistency in the labor markets, which are currently pushing the currency upward. ADP Employment figures revealed that 298K jobs were added in February, a number exceeding the estimated 187K. Since the Fed hike in March seems now inevitable, the data helps improve the chances of two more gradual increments after.

Markets will most likely remain flat until March 15th. Currently, investors are weighing many moving parts such as the elections coming up in Europe, the danger of aggression from North Korea, as well as the agenda of the Trump administration. Caution is the name of the game for right now. With China also showing signs of potential struggle in manufacturing growth and an unexpected trade deficit, there will be changes to the dynamics of commodity-based currencies.

 

EUR 

The Euro continues to be subdued by political instability and will probably not fluctuate too wildly until we get a decision from the European Central Bank tomorrow. Their meeting is expected to be of dovish tone and most analysts foresee President Mario Draghi maintaining an accommodative stance. Any optimism behind progress in Spain’s recovery may be countered by the worrisome situations in Greece and Italy.

Economists are starting to comment on their concerns that a French move to the right might not be what undoes the Euro, but rather the crises faced in Italy where a anti-establishment and anti-trade party is also on the rise. We will hear more about the Five Star Movement as the year goes on. Led by comedian Beppe Grillo, they could dramatically change Italian policies and international ties.

 

JPY

The Yen fell primarily because of policy divergence with the U.S. Chaos in Asia tends to aid Japan, but the troubles in North Korea and the need for strong cooperation to prevent conflict is putting the spotlight over security concerns.

We shall see if Japan makes a move towards military spending with help from the U.S., which we believe could boost the Yen’s value. However, direct threats against them may also propel the U.S. Dollar as an even safer asset in terms of uncertainty. Geographically, we are better off than Japan when it comes to threats in the Pacific Rim.