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The EUR has traded higher overnight as traders are looking at the moves made by the ECB yesterday in a positive way and are expecting this morning’s release of US Non-Farm payroll to be disappointing in such a way that it will move the FED towards further easing.

The EUR finally broke through the 1.2650 level trading as high as 1.2685 overnight.  The EUR broke the 100 level against the JPY moving to 100.15, the highest level since July 5.  It also has broken the 1.2100 level against the CHF.

Guest post by  Matthew Lifson, Foreign Exchange Trader,  Market Analyst of  Cambridge Mercantile Group.

Besides the positive feelings over the ECB bond buying program, the EUR was also buoyed by good economic numbers as well.  German exports increased 0.5% from June, when they had fallen 1.4%.  The market had expected a decline of 0.5%.

Moving forward, it will be interesting to see how the ECB program plays out.  Will Italy and Spain take advantage of this new program?  Will they be able to qualify?  WIll they ask for help, which they first need to do to be able to receive help?  After meeting with German Chancellor Merkel yesterday, Spanish PM Rajoy did not sound like someone ready to ask for assistance.

The next EUR summit meeting occurs on Sept 14, after the German constitutional court has its meeting and vote on the constitutionality of the permanent rescue fund.  For the time being, we will look at the events of yesterday as positive but also keep a cautious eye as the bond buying plan plays out.

For now the market attention turns towards the NFP release later this morning.  As I have mentioned many times, this number is never easy to predict and many times the predictions are very far off.  Today’s number is slated to be around a 150,000 increase and that feeling was strengthened yesterday by the ADP employment report which showed an increase of over 200,000 private sector jobs.  the unemployment rate is expected to remain at 8.3%.  Since FED Chairman Bernanke has said that the employment market was a major concern and would be a major factor in determining when the next round of stimulus would occur, today’s release is a very important one.  A better than expected number would reduce the chance of QE3 being announced at next week’s FOMC meeting.  As it has been stated earlier, if the FED does not make a move at next week’s meeting, it probably does not act until December if at all, since the October FOMC meeting is considered too close to the US Presidential election and the FED would not look to do anything that is political.

As I stated yesterday, the risk on currencies remain strong versus the USD.  USD/CAD has tested support at the .9800 level and the AUD has regained the 1.0300 handle testing resistance at 1.0345. GBP appears ready to take a run at 1.6000, so the market is getting comfortable here. Any hint that the FED will consider easing sooner rather than later based on the NFP number could give these currencies a push to move stronger.

It only a few more hours until 8:30.  150,000 seems like the number that analysts are focusing on.  I will be back shortly after the release with further comments.

Asian and European equity markets followed the strong rally by the US equity markets yesterday as all Asian markets were higher overnight and the European markets are all higher this morning.  DOW Futures are positive indicating a continued rise in US equity markets this morning.

See how to trade the Non-Farm Payrolls with EUR/USD