US data still holds keys to direction and volatility in FX; Friday's Nonfarm Payrolls data may confirm January’s spike was an outlier, economists at ING say.

Waiting for a volatility shake-up

US data continues to hold the keys to FX volatility. At the end of this week, the February jobs report will tell us to what extent the stellar January numbers were an outlier. ISM and NFIB numbers before that will help us and the market formulate expectations for Friday’s release, but for now our US economist expects payrolls to come in at around 200K, in line with consensus. That would still be higher than the 185k consensus call for the January release. Investors have been forced to an upward revision on the US labour market. However, a return to the 200K area would put the series on a more sustainable trend and more consistent with expectations of summer cuts by the Fed.

On Wednesday and Thursday, Fed Chair Jerome Powell will testify before Congress. A dovish change in narrative does not look very likely given the latest inflation data, and a cautious wait-and-see approach should be reiterated – but may fail to impact markets too much given the proximity with jobs data.

The action in the US calendar starts on Tuesday. Today, things look quiet across the board in developed markets, and we could see more low-volatility price action from last week. Still, the balance of risks for the Dollar before US payrolls looks slightly tilted to the upside and DXY could find some good support above 104.00.