Markets look to US Jobs as ECB kicks QE to Q1 2015

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ECB kicks QE

Mario Draghi, the ECB President, convened the first press conference in the newly built ECB’s Europa towers. The markets were however more focused on the opening statements by Draghi in regards to the timeline for the ECB’s QE stimulus program. One that has gained momentum since late October when the ECB Chief stated that the Central bank will do what it can to stave off deflation. The comments back then sent the Euro plummeting against a broadly stronger Greenback. Few weeks later, ECB Vice President, Vitor Constancio also commented that QE was very much on the cards stating that “QE was possible in theory” but wanted to see the current measures taken up by the ECB work their way into lifting the inflation in the Eurozone.

Two days prior to the ECB’s press conference, the Euro which opened the week stronger started its declines in what was being viewed as the markets pricing in the QE announcement during yesterday’s meeting.

Failure to announce any further easing measures and not steering too far away from the previous month’s meeting, the markets quickly realized that they would have to wait a bit longer, which saw the Euro reverse its losses to trade back above the 1.24 handle, in the process of squeezing all the shorts between 1.24 and 1.23 levels.

With the TLTRO auction up next week and expectations of a 100 – 250 bn take up by the banks, Draghi and his team would clearly be on the edge of their seats. A better than expected take up of the TLTRO loans would ease some pressure off the ECB. However, the possibility of a yet another lackluster TLTRO could tilt the scales back to QE’s favor and more importantly sovereign bonds.

With the ECB risks now behind, markets look forward today to the monthly jobs report from the US for the month of November. Markets are expecting to see a solid job performance report this month, with expectations calling for 230k new jobs, softly lower from October’s expectations of 235k. The unemployment rate is expected to hold at 5.8%.

The monthly jobs report is likely to gain importance during today’s trading session as a better than expected or in line with expectations reading could see the US Dollar steam on ahead and thus continuing to put downward pressure on the Euro. In the event that the jobs data fails to meet expectations, as we saw last month where the US economy added 214k jobs, below expectations and below October’s reading of 248k, we could potentially see a sharp selloff in the US Dollar, as witnessed during October’s jobs release.

Also considering that the Dollar Index is trading close to the major resistance level and having bounced off this level yesterday on the intraday charts, the EURUSD is most likely to be looking at the very least at a medium term trend reversal. A potential close above the weekly high of 1.25 would result in a very bullish picture being painted in the EURUSD eyeing the next possible target to 1.26. Assuming the US jobs report does come out dollar positive, EURUSD could possibly test yesterday’s support lows of 1.23, a break of which could pave way for more declines.

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