Choppy Weak is Anchored by Soft Employment Report
The euro was on the defensive prior to the US employment report on the heels of the unexpected news that the German Constitutional Court has concerns that OMT exceeds the ECB’s mandate and has referred the case to European Court of Justice. The timing and aggressiveness of its stance has taken the markets by surprise. Just yesterday when asked, Draghi reassured investors that the ECB is well within its mandate and this is most likely based on legal advice and the ECB reiterated that view today. As this issue plays out the Euro is sure to experience unwanted volatility.
Thursday ECB meeting came and went without a change to interest rates but there many issues that were address between the lines. Perhaps the most frustrating for market participants was Draghi’s insistence that there is not deflation in the EMU. Yet, the facts may change and Draghi has not ruled out additional action. A further decline in inflation is likely and so speculation of a March move is likely to intensify as the March meeting draws near.
The US employment report anchored a week, and the disappointing news reversed interest rates which had been moving higher during the middle of the week. According to the BLS, non-farm payrolls increased 113K compared to the 189K expected by economists. The revisions to the prior two months totaled 34K, which was also weaker than expected. The unemployment rate came in at 6.6%, which was in line with expectations.
The dollar continued to weaken, pushing the EURUSD currency pair above support near the 10-day moving average at 1.3580. Momentum on the currency pair is positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.
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