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We are back to the US employment report day and the prospect for volatility is greater than normal. The median expectation is for a rise in payrolls of 180k, after the weak 74k outturn of December, but the range of estimates is large (from 105k to 270k) as the January data are again likely to have be impacted by the bad weather. The dollar is likely to be more vulnerable to a weaker number (below 100k), which would then throw into question the ability Fed’s ability to continue with the tapering of asset purchases at the pace achieved in the past two months. The other aspect to watch will be the unemployment rate, which is seen holding steady at 6.7%, but this has consistently come in below expectations since the middle of last year.

Elsewhere, the euro was stronger yesterday in the wake of the ECB press conference. The move reflects a market that was more confident of some policy measures, either actual or hinted at, as a means of deflecting the risk of deflation in the Eurozone. The impression given was that the ECB does not yet have the internal consensus on where policy goes next, because when rates are already at 0.25% and money market rates have moved higher since the last easing of interest rates in November, the remaining options are neither easy, nor conventional.

The final point to note is that emerging markets remain on a more comfortable footing than was the case a week ago, which reduces the risks from payrolls today feeding through to EM currencies. Both the Turkish Lira and South African rand are 0.8% and 1.9% firmer against the dollar compared to a week ago. This reflects our view that what we are seeing in this area is more aligned to a return to more normal volatility, rather than the start of a more prolonged and sustained ‘crisis’.

Further reading:

EUR/USD Feb. 7 – Ticking lower under high resistance towards the NFP, after the Draghi rally

EUR/USD: Trading the US Non-Farm Payrolls