EUR/USD traded in a range of 1.3095 to 1.3180 yesterday, however it ultimately settled six points lower on the session.
Again the underlying support for the pair below 1.31 was clearly evident, and we feel this should hold in the short term, although a number north of 200,000 in tonight’s US payrolls lottery could take some belief out of the QE3 trade, thus strengthening the USD, and subsequently pushing EUR/USD back below 1.31.
On the other side of the coin, a terrible jobs print should see good buying in the pair, although the upside should be capped at 1.3272, which represents the downtrend drawn from the February 29 high. The investment banks are reporting offers above 1.32 and stop losses from 1.3250 to 1.33. Clearly the rhetoric from ECB president Mario Draghi disappointed traders who were hoping he would acknowledge the weakness in manufacturing and other data points and indicate easing at a future meeting, although he did leave the door open for cuts if its growth outlook proves too optimistic. Mr Draghi stressed the impact of the LTRO (long-term refinancing operation) is not fading away, suggesting we will not see a third round of liquidity injections anytime soon, while also saying that the ECB ‘did not discuss any specific move in interest rates’.
It appears the ECB’s baseline scenario has not changed, and it continues to foresee a ‘gradual recovery in the course of the year’, while the Central Bank still feels that monetary remains accommodative; given the uptick in EUR/USD, it seems the market was positioned for more dovish narrative. The upcoming non-farm jobs report is the key highlight in the US session, and while consensus is calling for an improvement from the March print, with 160,000 jobs created, the analysts' opinions are ranging from 89,000 to 210,000. Given the ADP payrolls report, uptick in the initial claims and lower pace of hiring seen in the ISM services manufacturing report, expectations are low, so it appears the market is probably positioned for a number just north of 100,000.
It is fair to say we will see a pretty subdued trade going into the report, however even when we do see the payrolls report, traders then need to position themselves for the weekend drama, with the Greek elections the major event risk. Polls suggest the current coalition (Pasok and the New Democracy party) may have a tough time getting the required votes to keep the austerity regime going, so any uncertainty caused by a failure to achieve majority will certainly cause risk to be paired back on Monday.