EUR/USD has been trading stable just above 1.37 overnight

Market movers today

• The US employment report for March will be published later today. Uncertainty is quite high given recent distortions from the bad weather. However, we look for a decent report of 195,000 and we even see some risk on the upside, as there could be more pay back in store from the bad weather. The unemployment rate surprisingly increased to 6.7% in February and we expect it to fall back to 6.6% in March.

• In the euro area German factory orders in February are due for release this morning. The new orders component of manufacturing PMI has declined in the past two months and it could reflect weaker factory orders. We forecast a slight decline after it increased by 1.0% m/m in January.

Selected market news

If there is one thing ECB President Mario Draghi has been successful with during his tenure, it is moving market prices by merely hinting at policy action, while not actually implementing new measures.

This was also largely the case yesterday, as President Draghi managed to talk equity markets higher by stating that unconventional measures including quantitative easing are a possibility if inflation does not pick up as expected – and that the Governing Council was ‘unanimous’ in its commitment (see Flash Comment: No ECB easing despite fear ofstagnation). The EuroStoxx 50 future closed 0.5% higher and European sovereign spreads tightened.

We expect euro rates to remain stuck in recent ranges, see potential for further peripheral spread tightening, and see an increasing probability that the peak in EUR/USD is now over. Following yesterday’s move lower, EUR/USD has been trading stable just above 1.37 overnight.

The US and Asian markets have been flat to slightly lower ahead of today’s US employment report and given strong price momentum in recent weeks, the tolerance for disappointments is probably fairly low. Current equity market pricing to a large degree discounts a rebound in US activity following improved weather conditions, which now needs to be confirmed in upcoming economic data releases.

The Swedish krona came under pressure yesterday and EUR/SEK is trading close to 9.00 for the first time since late February. We see risks of a further depreciation of the krona over the coming months driven by seasonal flows and most importantly as we now expect the Riksbank to lower rates at its meeting next week or in July (see FX markets on p.2). There is thus growing evidence that the strong downtrend in NOK/SEK that lasted all of 2013 has been broken.