ECB disappoints trades sending Euro sky-high, will NFPs disappoint as well?

Price action during the past 24 hours has been nothing short than phenomenal in the currency markets on the back of the ECB meeting and ahead of the Non-Farm Payrolls report scheduled for release today. The Euro was of course in the center of attention as the ECB board met to decide how to tackle the stagnating inflation in the Eurozone but their decision caught everybody completely off guard.

We expected the ECB policymakers to be bold in their actions to try to spark some growth in the Euro area but instead what we got fell short off our expectations. The ECB decided to be really conservative in their actions and actually upgraded their future outlook sounding significantly less concerned than analysts expected. As a result the Euro experienced its largest single-day rally since 2009 trading nearly to 1.1000 which is a huge change of outlook for the Single currency.

Today however the focus turns to the release of the US Non-Farm Payrolls report that could act as a confirmation for the Fed to finally pull the trigger and raise rates this month. We’ve heard from Fed boss Janet Yellen that she’s bullish enough and ready to take action so we expect today’s report to act as the confirmation signal for them if it prints in a bullish manner.

We have to mention here that there are reasons to believe that the NFPs this month might not come out as strong as everyone expects, the employment component of the Non-Manufacturing ISM index is one of them. As such we would like to advise extreme caution ahead of today’s report as a miss in the levels could signal a broad-based Dollar sell-off.

Taking a quick look at yesterday’s price action, as we mentioned above the Euro exploded to the 1.0980 level yesterday after the ECB decided to be less decisive in their actions to battle low inflation. The currency pair is correcting trading at 1.0890 this morning but its outlook is closely correlated to the NFP report today. At any case caution is advised as the Euro could be very volatile today as investors are rushing to re-adjust their portfolios to the changing conditions.

The Cable benefited from Euro’s bullish reaction yesterday and rallied to the upside as well but in a more reasonable extent. The British currency managed to climb above the 1.5100 area coming off its 1.4900 lows erasing all of this week’s losses in one quick correction. Today the release of the NFP numbers will dictate the price action in the Cable to we should see increased volatility during the next few hours.