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Asian Session – Euro slides as dollar bulls await confirmation from employment report

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The euro slipped below the psychologically important 1.10 level after the European Central Bank said it will finally embark on its massive 1.1 trillion asset purchase program next week.  The ECB will purchase government bonds at about a 60 billion monthly pace until September 2016 – a date that could be extended depending on economic developments.  In what should have been uplifting news for the euro, the bank also upgraded its growth forecast to 1.5% for 2015 from 1% previously.  Still, a promise to buy even negative yielding bonds – provided their yield was not below the -0.20% deposit rate – caused Eurozone bonds to rally further.  The euro managed to climb back above 1.10 to trade in the 1.1015-30 area.

The dollar was waiting for the all-important employment report out of the US later in the day.  Traders were looking for confirmation that the US labor market remains on a path of improvement that would signal that the economy could withstand 1 or possibly 2 interest rate hikes later this year.  Economists were expecting the report to show the net creation of 240,000 nonfarm payroll positions and the unemployment rate to dip to 5.6%.  The pace of wage increases will also be closely monitored.

US economic data was mixed the previous day, as both weekly jobless claims and January factory orders disappointed by not meeting expectations.  San Francisco Fed President John Williams said in a speech that it was better for the Fed to get an earlier start on higher interest rates rather than wait too long and be forced to hike more aggressively later.  He also said that the rate hikes would probably be quarter-point in size but not at every meeting.  The speech was overall helpful for the dollar.

Apart from the US employment numbers, the market will look at revised Eurozone GDP for the fourth quarter, Swiss inflation for February and US and Canadian trade balances for January.

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