Dollar strength to be tested at nonfarm payroll

There was little in the way of change from the ECB yesterday, certainly from the action side of things, but also in their expectation that inflation will return to the 2% target by the end of 2016.  What we did get from Mario Draghi however was a more assertive stance towards undertaking quantitative easing should the inflation picture deteriorate further.  We will not know this until sometime after the Easter break and well into the summer, so for now expect the ECB to do little more than maintain a slightly more dovish rhetoric to play down the euro.  After a volatile reaction to the initial decision EURUSD took out the 1.3740 level and even broke below 1.3700, but only just.  This is where EURUSD is currently trading this morning, at the figure, just about holding this support level.

All eyes on the nonfarm payroll today where the headline figure is expected to come in at 195k and the unemployment rate is due to decline to 6.6%.  The dollar had a good run higher yesterday mainly due to the weakness in the euro and sterling, but against the Yen it could not conquer the 104.00 level.  This is a major near-term resistance level for the pair and so today’s figure could be make or break.  Anything over 200k could lead to a pop to the upside for USDJPY and if this materialises the next line of sight would be 104.85.  The consensus is for a plus 200k figure, so anything below this would come as a disappointment and could lead to dollar weakness.

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