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Euro looks to Payrolls for extra boost

Although the single currency is now trading in the red, it still keeps the area of 1.3095/1.3100, a tad lower than yesterday’s highs, when positive comments from the ECB’s Mario Draghi lifted the EUR/USD to the boundaries of 1.3120, catching the market off guard. A quick wrap-up of Draghi’s presser signals that a rate cut was indeed discussed, however the final ‘on-hold’ consensus did prevail, now inferring that interest rates below the current 0.75% are likely for the year ahead. Reinforcing this idea is the fact that Draghi sees the euro zone’s economics performing better from the second half of the year, despite the ECB lowered its growth forecast to an annual contraction of 0.5% and an expansion of 1.0% for 2014. When it comes to prices, the inflation would be grinding lower, 1.6% in 2013 and 1.3% for the next year. Furthermore, a plus for the euro was the absence of any mention of the exchange rate levels, as had been expected after the pronounced depreciation from above 1.3700 in February to a test of 2013 lows around 1.2965 on last Wednesday.

… The ambiguity of NFP

Big day for the FX community, as the US NFP are upon us. Markets’ prior surveys expect the US economy to have created 160K jobs during February, a tad higher than January’s raise by 157K. Regarding the jobless rate, the median points to 7.9%, matching the previous reading.

The greenback woke up trading in a firmer tone in anticipation of better results, trading back around the 82.30 region and extending its upside from February lows below 79.00. The risk appetite is there, latent, favoured by the context recently dominated by headlines of all-time record highs in the US markets and multi-year highs in Euroland.

The final results of today’s NFP would carry contrasting effects for the cross. According to the last ADP report and recent drops of Initial Claims, market participants expecting a stronger-than-estimates reading would have reasons to be faithful in a continuation of the USD rally, as such a result would prompt traders to start mulling the idea of the Fed abandoning its ongoing QE programme sooner than previously stated. Nice try.

In light of recent testimonies and comments not only by Chief Bernanke but also from other FOMC members, the Fed’s accommodative policy would need more than this noted recovery in the US labour market to stop pumping liquidity into the system. Don’t get it wrong, it is a noticeable rebound, however with the jobless rate hovering over the 8.0% we’re yet pretty far from the 6.5% threshold established by Bernanke & Co. In addition, the spectre of the ‘sequester’ would impact on the labour market – among other sectors, of course - severing thousands of jobs, although the lag of its effects would arise within the coming months, posting strong headwinds to the current recovery beyond the first half of the year.

From a technical perspective, the bloc currency is trading within a down-channel, exposing its initial resistance at 1.3175/1.3200, home of the 100-day moving average and the accelerated downtrend line set from February highs, ahead of the strong area around 1.3297/1.3320, where converge the 55-day moving average, the 23.6% Fibonacci retracement of the upside from the summer 2012 – February highs and the uptrend set from July 2012 lows.
On the flip side, a significant support zone resides at 1.2890/1.2930, where sit the 50% retracement, the 200-day moving average and the bottom of the down-channel.

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