Interest Rates still the main driver

What a difference a day makes, they say a week in politics is a long time, a day can make all the difference in the forex market, but caution is the main play in the first part of the new week.

I am going to go out on a limb here and say that the USD will become weak again this week and the main play will be the same as its been for months now with USD being sold off against all the risk pairs. The NFP number seen last fridy whilst excellent for the US economy to me does not seem sustainable. This number is fat with temporary jobs created at this time of year to fill the ranks of retailers at Christmas time, I would expect the January Number to be much more sobering and realistic.

Traders took the opportunity on friday on the back of this number to unload some of there short positions in USD and commodities. To me for the USD to gain in strength fundamentally we must see action on interest rates, and at this stage I cannott see the Federal Reserve making any sudden moves based on one employment number.

The overwhleming trend in the market is for risk apetite based on cheap USD and JPY so the carry trade is as attractive as ever. At time of writing the EU is approaching 1.4900 from daily lows of 1.4840 so it's pretty clear that traders see no end to the current situation and that the strength in USD seen on friday serves as a pretty good long entry point on Monday.

As always the market will give us our answer in good time.