FOREX Fundamental analysis for EUR/USD on March 10
Despite Jerome Powell's speeches which paved the way for the dollar to strengthen, ahead of today's US labor market report, most investors lock profits and take a wait-and-see stand. Trading on such days often results in losses because of mixed powerful news impulses, though judging by ADP employment data and experts' forecasts, today's report might do the greenback some good.
At the same time the jobless claims report showed 211K jobless claims, which is the highest since last October.
What is making turmoil in forex trading is the yield curve, which is in danger of falling into its deepest inversion since 1981. And this is where today's Non-farm Payrolls may bring clarity to the confrontation between equities and bonds.
US Yield Curve Dynamics
Stocks tend to be bought by optimists while bonds are more of a defensive asset. A good investor keeps both in his portfolio. The inversion of the yield curve is not the most accurate predictor of a recession. If you take historical calculations, its predictions have come true 22 times out of 28 since 1900.
Analysts believe that the disagreement between bonds pushing for a recession and stocks suggesting a soft landing is contributed by the oversaturation of the financial system with money. That's why the S&P 500 is in no hurry to decline, supporting European currency buyers.
Nevertheless, the BofA believes in the greenback, believing that the Fed's actions still lag behind price growth and the regulator will have to catch up and overtake inflation.
Central bankers' rejection of dovish reversals
The Non-farm Payrolls report is important and in light of Jerome Powell's recent remarks, even historic. The labor market report will set the record straight today. The expected values or the worse than expected data will allow the bulls of EUR/USD to retake the initiative and bring the pair back to the range of 1.0575-1.0675 which will be a reason to buy. But the release may produce other data.