• USD/JPY holds above 20-day SMA as investors wait for fresh rate signals

• EUR/USD inside a constraining zone as ECB rate decision looms

• USD/CAD stabilizes near December’s barrier ahead of BoC policy meeting

 

Nonfarm payrolls, Powell's testimony --> USD/JPY

USDJPY remained flat and supported around its 20-day simple moving average (SMA) even though Friday’s ISM manufacturing PMI for February fell short of expectations by a large margin, squeezing Treasury yields lower.

Investors are now eagerly waiting for the Fed chairman’s testimony before the House and Senate committees on Wednesday and Thursday respectively, though given the latest upside surprise in inflation figures, his speech might encourage more patience than send any clear rate cut signals.

Therefore, Friday’s nonfarm payrolls report for February could play a bigger role in teasing rate expectations this week. The survey has been beating forecasts over the past three months, but analysts have placed their bets slightly below 200k again compared to 353k previously. They also anticipate a marginal decrease in average hourly earnings to 4.3% y/y and a steady unemployment rate of 3.7%.

Futures markets are currently providing a 58% probability of a June rate cut. Hence, an upside surprise in the jobs data might be important in further delaying anticipated rate reductions and consequently helping USDJPY to breach the 150.80 wall and run towards the 2022-2023 ceiling of 151.89-151.93. On the other hand, a miss in the figures could make the June rate cut more real, pressing the pair below its 20-day SMA and towards last week's low of 149.19.

ECB rate decision-->  EUR/USD

Meanwhile in the eurozone, the European Central Bank (ECB) is scheduled to announce its rate decision on Thursday at 13:15 GMT. Policymakers are expected to keep interest rates steady once again and remain data dependent as core inflation keeps fluctuating above 3.0%.

However, their new economic projections might reveal how willing the central bank is to step into a more accommodative policy as soon as June. If policymakers see inflation returning to their target earlier than previously expected, EURUSD could ease to test its 20-day SMA seen around 1.0790. A decisive close lower might prompt a new bearish wave towards the 1.0700 round level.

Alternatively, uncertainty over the inflation path and hopes the eurozone economy could experience some growth in Q1 could boost the pair above its constraining 50-day SMA and the key barrier of 1.0880. If that proves to be the case, the price might extend its two-week-old upleg to 1.0930 and then up to 1.0980.

BoC rate decision--> USD/CAD

The Bank of Canada (BoC) will hit the headlines on Wednesday when it announces its policy decision at 14:45 GMT. Despite their similarities, the Canadian economy has been more fragile than its US cousin and, with inflation having retreated into the central bank's control target range of 1-3%, policymakers might feel more confident about expressing their rate cut thoughts. Nevertheless, they may avoid showing any commitment until they ensure inflation is sustainably moving towards their 2.0% mid-point target.

Technically, the loonie has been a laggard against the greenback since the start of the year, falling to a new two-month low last week. Its downward pattern has been showing no cracks so far, but it's very close to December’s floor of 1.3600-1.3622. If the US dollar claims that barrier, the door will open for the 1.3700 number. Otherwise, USDCAD might slide below the key 1.3500-1.3537 support zone to examine the 1.3460 area.