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Quiet Before Payrolls

Yesterday’s Trading:

The euro/dollar rose by 450 points on the American session to 1.0980. The active closure of short positions on the euro was sparked by the ECB decision and what Draghi had to say. Market participants expected more aggressive measures to be taken with regards to relaxing monetary policy.

Volatility on the market rose 9 minutes before the official ECB release. Before the results of the ECB meeting were out, the Financial Times wrote on twitter that the ECB would not change its monetary policy. Due to this misinformation, the market whipped up a storm. The euro/dollar jumped 120 points to 1.0657. Then it became clear (at 14:45 EET) that the ECB would drop its deposit rate and leave its base rate unchanged. The euro fell by 157 points to 1.0518.

The ECB dropped its deposit rate from -0.2% to -0.3%. The base rate stayed at 0.05%. Mario Draghi announced at the press conference that the ECB would keep their asset purchasing program at 60 billion euros per month and extend the program by 6 months to March 2017.

Since market participants were expecting the ECB to extend QE and this was already accounted for in the price, everyone was in a rush to close their short positions. Even Janet Yellen couldn’t muscle any limelight off the Europeans with her speech.

Eurozone GDP forecasts: for 2015 it was upped from 1.4% to 1.5%; for 2016 it was left unchanged at 1.7%; and the forecast was increased for 2017 from 1.8% to 1.9%. Inflation expectations were down: 2016 – from 1.1% to 1.0%; 2017 – from 1.7% to 1.6%.

The pound/dollar was up 200 points by the end of the day and stood at 1.5135. The dollar/frank was down 300 points to 0.9930. The Aussie/Yankee dollar pair was practically unchanged but the Aussie was feeling under pressure in its crosses (GBP/AUD, AUD/CHF, EUR/AUD).

Main news of the day (EET):

  • 09:00, German October manufacturing orders;
  • 15:30, Canadian October balance of trade, unemployment level and job creation for November. US average hourly wage for November, balance of trade for October, NFP and unemployment level for November;
  • 18:45, Mario Draghi to speak;
  • OPEC meeting.

Market Expectations:

I’m doing this review without graphs since the market is going to be under pressure from the American NFP labor market report. I didn’t make any forecasts yesterday and today is no different in this respect. The best trading decision of the day is to take a break. However, if you really want to test your strength on the market and get your fill of adrenaline for the whole month ahead – knock yourself out.

The market expects the US to have created 200,000 non-agricultural jobs in November, against October’s total of 271,000 If the November value is around 150k, the market is unlikely to give this deviation real contemplation. The dollar, of course, will fall, but only slightly. Otherwise, if we see strong data, the pair will look to correct by 100 points. Traders will only wake up and react to yesterday’s euro rally on Monday.

On Wednesday trader attention will be on the ADP, the Bank of Canada’s interest rate decision and a speech from Janet Yellen.

Technical Analysis:

EUR/USD: the euro/dollar is trading at the U5 on the hourly. The balance point is at the LB (1.0804). This level corresponds to the 38.2% fibo level from the 1.0518 to 1.0980 growth. What I expected to happen to euro growth after 20-24th November with a bull phase has already come to fruition even though the bulls have until the end of December.

I’m not ready at the moment to say where the correctional recoil levels are for the euro. More time is needed to make an accurate analysis. One thing is clear though, Draghi has disappointed the market. The sellers have left and the buyers are back.

GBP/USD: I’ve only made one review today since I haven’t forecasted any particular scenarios. The pound/dollar has restored by 240 points to the U3 (on the hourly). There is bull divergence on the daily time period and this, of course, is a bull signal. A hammer is forming on the weekly which is also a bull signal.

The key event of the day is the American labor market report – the NFP.

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