Initially, the Euro jumped to 1.2652 on the back of ECB's president Draghi speech but it was rejected and launched to 1.2560 where the pair found support and began to rise towards previous highs. Currently the pair is trading at 1.2630, trying to regain the 2-month highs at the 1.2650 zone again.
"EUR/USD trades at the top of the recent range around 1.2630, holding and overall bullish tone according to recent price behavior. With a daily high at 1.2650, the pair was favored more on US positive data and S&P soaring to levels not seen since 2008, rather than ECB actions," comments Valeria Bednarik, FXstreet.co Chief analyst. "The Central Bank finally announced what leaked past Wednesday, which was not enough to convince market players, sending the pair to 1.2580."
It is significant that the "Euro has not yet extended its gains relative to the US$ even though it is sitting at a two-month high of $1.2652," comments Andrew Wilkinson, Chief Economic Strategist at Miller Tabak. "Traders were somewhat undecided whether to stick with the single currency’s recent rally on account of the positive reception to Draghi’s bond purchase outline or whether to sell it on the accompanying news that growth in the region will now be lower than earlier thought."
But as far as "the risk-off crew are walking away from the ultra-safe havens of Japan and Switzerland and starting to trust the rally in riskier assets," continues Wilkinson. "It would be of no surprise if the euro burst through its session high against the greenback as investors find little in the ECB’s plans to deter them."
Beat Siegenthaler, Strategist at UBS, points that "the question investors have to answer essentially boils down to whether or not the ECB will achieve its objective of removing the tail risk premiums in the market. If the answer is yes then risk assets in the Eurozone and maybe globally should rally.”
"At this point, the pair will likely hold in a tight range ahead of tomorrows NFP data, in between 1.2580/1.2650 price zone," continues Bednarik. "The bulls are still in control of the pair, and will likely remain so unless US news tear the pair down below the 1.2550 mark."
And the day came when the NFP...
Meanwhile and as Kathy Lien from BK Asset Management comments, "it is time to focus on the U.S. non-farm payrolls report." Lien affirms that "investors are already thinking about payrolls because today's strong rally in equities and currencies can be largely attributed to better than expected reports on the labor market."
The latest ADP payroll survey shows that US private sector employment increased by a better than expected 201,000 in August, the biggest gain in five months, beating forecast of 140,000. In addition, July's gain was revised up to 173,000, from 163,000. Initial jobless claims fell to 365,000 last week, from 377,000.
"All this evidence suggests that our forecast of a 100,000 increase in August's official non-farm payroll employment measure may be too pessimistic", says Paul Ashworth, analyst at Capital Economics. "More generally, we wouldn't expect this improvement to persuade the Fed to hold fire next week. Employment would need to grow by a lot more than 200,000 per month to bring the unemployment rate down at a pace more agreeable to the Fed".
After the ADP release, "The dollar gained broadly in expectation that the critical release of non-farm payrolls on Friday will also show a strong reading", says the UBS analyst team. The bank adds that the "NFP has to be very strong to support the USD after today's data and recent statements on quantitative easing."
As summary, market reaction over the final NFP seems hard to predict at the time being. Anyway, "the number is not as important as the EUR/USD levels," says Valeria Bednarik. "Watch for a break above 1.2650 Thursday high to trigger a short term upward movement towards 1.2680 first, and the 1.2710 area later."
"On the other hand," Bednarik affirms, "a break below 1.2550 will give sellers control, at least in the short term, with the pair then targeting the 1.2480/1.2500 price zone."
Finally and as reminder, Nonfarm payrolls will be the last major data before the FOMC meeting on Thursday 13th and as TD Securities analysts state in a recent report, "a big surprise could easily
sway the Fed’s decision on QE3." According to TD, NFP is the "last chance to sway votes on QE," and a "blockbuster report (>200K) could keep the Fed from easing further on the 13th, but we’re only expecting a 105K gain."
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