From Alpesh Patel – Draghi sends Euro to 1.36, will today’s jobs report boost or crash it?

As we mentioned in our report yesterday, the Euro was the currency that markets were focused on as the European Central Bank announced its key interest rate and President Draghi held the usual press conference. The ECB didn’t change the interest rate’s levels but the outcome of his remarks was a radical rise for the European currency that overtook 1.3550 and peaked just above 1.3600 against the US Dollar.

Draghi’s comments were the reason behind this move higher and some may wonder on what did he really say to cause this. The important thing however is not what he said, but what he failed to mention. Most analysts expected Draghi to focus his comments on the low inflation and the emerging markets’ problems but what he did is that he left all that aside disappointing investors that were ready to short the Euro based on that hypothesis. Instead, in contrast to the previous month’s press remarks, he acknowledged the improvements in consumer demand and investors’ confidence and this was enough to spur a rally higher.

Now the focus for today shifts from the Euro to the US Dollar as the extremely important Non-Farm Payrolls report is scheduled for release. The report is a key market driving event as it monitors jobs growth and unemployment in the US and its release pretty much hints on Dollar’s outlook for the following period. The report missed expectations by far last month disappointing Dollar traders and drove the currency lower but this month analysts are making word for a significant rebound.

Again, the thing to focus on is not whether a rebound will come or not as this is almost certain. The thing to focus on is how much of a rebound will we see. And this will be a tricky release as leading indicators used to assess whether the release will be strong or not are mixed. As we mentioned in our reports previously this week the employment component of the Non- Manufacturing ISM report showed signs of improvement in the jobs sector and the Initial Jobless Claims fell yesterday but on the other hand the Manufacturing ISM employment component and the ADP Employment figures recently released paint a different picture.

Analysts are calling for an increase of 180k jobs added the previous month and if the number comes in line with expectations then the Dollar will run a relief rally higher after being under pressure yesterday. However, any number below the 125-130k jobs added will re-ignite the sell-off and we could see the Euro reaching 1.3700 and the Pound near the 1.6450 mark.

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