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On the jobs front this week we’ve had the ADP non-farm employment change and unemployment claims all coming in ahead of expectations. Many analysts feel this puts upside risk to today’s NFP reading which is expected to show 180,000 jobs created and unemployment falling to 7.2%. A strong reading on the jobs front will certainly see tapering talk ramp up. There was also an upward revision in 3Q GDP with growth now estimated at 3.6%. Despite the positive data, the US dollar didn’t actually gain much traction and in fact lost ground to some of the majors, particularly the euro.
Single currency reverses higher
EUR/USD dropped to 1.354 before spiking to 1.368 on the back of ECB President Mario Draghi’s speech. While policy was left unchanged in Europe, there were some downward revisions to inflation. In fact the ECB only expects inflation to slowly rise in 2015. Draghi said the ECB is considering all available instruments to help fight low inflation. The rally in the euro was perhaps due to unwinding of euro shorts on low probability that the ECB will take action.
This move in EUR/USD put the pair at its highest since October, but it remains tricky to make a call given jobs numbers later today are likely to be a binary event. The rest of the FX space continues to maintain fairly tight ranges heading into the non-farm payrolls data. Fed members Plosser and Evans will also speak and help shape tapering expectations.