The first week of trading did not change the overall picture in the Euro-Zone and for the euro, which continued to be offered after taking out 2011 lows at 1.2873. This week, focus will be on the ECB on Thursday and bond auctions from Spain and Italy. From the US, data is limited, but the Beige book on Wednesday will show if the economic conditions are showing signs of improvement ahead of the FOMC meeting on the 25th of January. Friday’s US December job market report did not trigger a positive risk-sentiment, despite better than expected figures.
After the Euro-Zone last Friday showed an unchanged unemployment of 10.3% for November, the US December job market report was a different story. The release showed the Nonfarm payrolls beat market expectations with 50k, coming out at 200k. Although very strong, it was not as strong as projected by the ADP report with a figure of 325k. The main unemployment rate also beat expectations, coming out at 8.5% vs. a revised figure of 8.7% for November. Labor force participation remained at 64.0%, suggesting that jobs are being created, despite the crisis, and confirms the recent upbeat figures from the US.
This week, the scene will be dominated by policy events, kicking off with Merkel and Sarkozy, aiming to find a joint stance with regards to a rescue plan for the Euro ahead of the EU summit in late January.
The main event will take place on Thursday, where the ECB will communicate the monetary policy for the Euro-Zone. Interest rates are expected to be kept unchanged at 1.00%, and Draghi is expected to keep the dovish tone in light of the excessive liquidity, provided by the ECB, which has made the EONIA drop to around 0.4%. If the ECB will announce further quantitative measures, this should have a negative impact on the Euro. Technically, EURUSD is still in a clear down trend with immediate support at Friday’s lows at 1.2667, before 1.2587. Short term resistance seen at 1.2855 before 1.2943. On a daily time-frame, a more significant trend resistance from October 2011 highs is coming in just below the 1.30-figure. Last Friday, the JPY appreciated to 97.27 against the EUR - the highest level in 11 years. It could be argued that the EUR is taking over as the leading funding currency on the rate outlook as it continues to be shortened across the board.
From the UK, the BoE will also be in focus in Thursday, where the BoE are expected to keep benchmark rates on hold at 0.5%. GBPUSD and EURUSD have followed each other pretty consistently, but in the past few months, the GBP has outperformed the EUR. EURGBP took out 2011 lows at 0.8284 two weeks ago, and is now probing for next level of support at 0.8142. GBPUSD has support in the range of 1.5362-73 before 1.5271 and resistance at 1.5470-area before 1.5580.