The dollar index could take off today if the US NFP number shows that the job market is booming. German factory order and the ECB's monetary policy decision keeping investors on the sideline.
European markets are trading lower after the disappointing German factory data and this is also impacting the US futures. The German economic data was rotten, it has left a bitter taste in investors' mouth. Germany is the economic engine of the Eurozone, it is known for its strong export and manufacturing. The German Jan factory order data came in at -2.6 percent by missing the forecast of 0.5 percent. This really shows why the ECB made such a dovish decision by introducing the TLTROs, and at the same time, it cut the growth and inflation forecast.
Questions were being raised yesterday if the European Central Bank has made the right decision because the bank has seriously run out of options in order to shore up the growth in the Eurozone. Since the advent of the quantitative easing program, four years ago, it was the most aggressive cut in the growth forecast by the ECB. Today’s German factory number has put things in perspective and it explains why such a decision was essential.
Of course, the ECB wants to stay ahead of the curve and the bank doesn’t want to face the same scenario as the Fed. The Federal Reserve's hawkish monetary stance scared the investors; the concerns were that the Fed’s monetary policy created the economic slowdown. Mario Draghi, the president of the European Central Bank, decided to move ahead of the curve and paid attention to the economic data. The bank's decision was primarily based on the economic numbers which confirmed weakness in the euro zone's growth.
Having said this, one can only hope that the change in the ECB’s stance may provide the kind of aid which the market required. If the situation continues to worsen, there is very litte left that the bank can do.
Over in the United States, it is all about the US NFP data. After some strong recent set of economic readings, the US dollar index touched its strongest level since December 2018 yesterday. Last week, the US GDP number also confirmed that the economic growth in the US is sturdy, something which is against the (current) Fed's view of the economy.
However, Jerome Powell, the Fed chairman, wants to practice patience when it comes to the monetary policy. A strong jobs number (due later today) could put some more pressure on the Fed with respect to their monetary policy.