Monday starts with quiet FX trading

Trading has been relatively quiet in foreign exchange so far today. EUR/USD currently trades at $1.3027, almost unchanged from Friday and protecting its gains from the second half of last week. The euro's appreciation against the US dollar has not been due to positive news out of Europe but the rally was rather triggered by several negative economic statistics having been released in the United States, which may be why the markets are currently waiting for new information to process as the euro remains close to the $1.30 level.

Expectedly, USD/JPY continued its upward move after last week's BoJ announcement of doubled QE efforts. The currency pair trades at ¥98.64, roughly 0.8 percent above Friday's level. Tokyo stocks were also greatly supported by the central bank's actions, trading 2.8 percent higher at 13,193 points at the moment -- not far from the stock average's five-year high.

There were no sudden jumps in GBP/USD, either. Cable is at $1.5317, slightly below Friday rates. Fed chairman Ben Bernanke's speech this evening might push the pair in either direction, but I wouldn't expect too much from him today. Currency traders should look out for the change in UK industrial production tomorrow as well as several key US releases from Wednesday onward.

Weekly Review 14/2013

Last week's news were dominated by the Bank of Japan doubling its monetary easing efforts. BoJ governor Haruhiko Kuroda's announcement quickly sent the JPY down on Thursday, giving the currency's downward trend new momentum. The central bank decision is likely aimed at supporting the economy by forcing private citizens and companies alike to dispense their savings in light of future inflation and the BoJ buying up the majority of government bond issuance. The BoJ communicated a 2 percent inflation target within two years. Whether this is sufficient to alter inflation expectations in such a way that the country's chronic deflation problem can actually be reversed remains to be seen. Betting against central bank actions remains a very risky strategy, however. Currency investors will have little choice but to short the Japanese yen, while equity investors may be well-advised to go long the Nikkei 225. At the end of Friday trading, USD/JPY was quoted at ¥97.5, GBP/JPY at ¥149.6 and EUR/JPY at ¥126.7.

In Europe, neither the European Central Bank nor the Bank of England took any drastic actions. Both central banks kept interest rates constant, but ECB president Mario Draghi cautiously hinted at future rate cuts if the economic situation does not improve and governments fail to implement structural reforms.

More important news came from the United States on Friday. US nonfarm payroll employment data disappointed. Only 88,000 new jobs were created in March 2013, way below economists' estimate of 190,000 and marking a nine-month low. New concerns about the economic recovery in the United States were sparked with regard to austerity measures beginning to show skid marks. During the first two months of the year, it seemed as if the US economy would get through the fiscal constraints rather unharmed, but now market observers are afraid the economic recovery might once again stall after a strong start into the year. Consequently, the US dollar dropped in value against most major currencies at the end of the week, with EUR/USD trading at $1.299 (up 200 pips from Wednesday) and GBP/USD at $1.533.

EUR/USD edges higher after disappointing US nonfarm payroll employment

EUR/USD edged up on Friday after disappointing employment statistics from the United States. According to the US nonfarm payroll employment data released by the Bureau of Labor Statistics, employment increased in March by 88,000, significantly below economists' forecast of 190,000 from a Bloomberg survey, with unemployment slightly lower at 7.6 percent (previously 7.7 percent). This suggests that employers hired fewer workers in March than previously thought, and this fact is all the more disappointing when considering that unemployment only decreased statistically due to 496,000 people dropping out of the workforce, bringing the participation to its lowest level since 1979. On the other hand, it should be mentioned that the numbers for January and February were revised up: Apparently, 148,000 new jobs were added in January (instead of only 119,000) and 268,000 jobs were created in February (50,000 more than previously estimated).

Still, last month's numbers raise fresh concerns about the dynamics of the US labour market and the real growth of the country's economy. After all, this was the lowest growth rate of jobs in nine months. Looking ahead, this does not paint an optimistic picture, with US austerity slowly beginning to kick in (overall, 7,000 jobs were cut in the government sector in March) and the Fed having to reduce its bond purchases eventually. The markets were quick to react to the bad news: While stocks suffered, money went into US Treasuries. The dollar is currently trading at $1.30155 against the euro, roughly 200 pips above Wednesday's levels, helping the euro to end the week on a bullish note -- although I doubt this to be much desired by the euro area, which is in need of a weak euro to fuel its ailing economy, as hinted at during yesterday's ECB press conference.

EUR/USD lower before ECB meeting

The EUR/USD currency pair has fallen in Thursday trading, as the market is waiting for today's European Central Bank interest rate announcement and Mario Draghi's comments. Currently, the euro is struggling to stay above the $1.28 level. I don't expect the ECB president to announce any drastic measures today, but event risk for euro buyers may have increased somewhat following the Bank of Japan's announcement of doubling its quantitative easing efforts. Still, the Draghi Q&A session always has the potential to move exchange rates, as market participants carefully listen to and interpret every word the central bank president may have to say. It is likely that critical questions relating to Cyprus feature prominently during the session, but again, I don't expect any real news from the ECB today.

On a related note, there were no news from the Bank of England today. It held interest rates constant at the all-time low of 0.5 percent and did not announce any changes to its QE programme, despite the BoJ's move during the night.

EUR under pressure ahead of ECB meeting

The euro continued its fall against most major currencies on concerns over the area's economic health ahead of Thursday's European Central Bank meeting. The Cypriot bailout is still pretty much an unknown variable for investors, especially with regard to possible central bank actions. Market participants reportedly think the recent soft inflation numbers suggest a higher probability of a rate cut, but I think such bold actions remain very unlikely. However, even on top of the bad news coming out of Cyprus there is no shortage of downside risk for the single currency at the moment, with a record-high 12 percent eurozone unemployment in February and a slower manufacturing activity in March.

As of this writing, EUR/GBP was 0.12 percent lower at £0.848 and EUR/JPY was 0.37 percent lower at ¥119.29. The euro was 0.18 percent higher against the dollar at $1.2848 following the release of a disappointing US ISM non-manufacturing PMI, which fell from 56 to 54.4, indicating a slowdown in the country's service sector growth, but the EUR remained near its recent year-to-date low.

The situation is unlikely to change significantly tomorrow, suggesting that the EUR might test its $1.28 supporting level again sooner rather than later.