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The day of judgement

We enter the most important trading day of the week, with both the US employment report and ECB meeting on the agenda.  The market was looking for a 215k increase in headline payrolls, with the unemployment rate seen holding steady at 6.3%, although better numbers have been priced-in the wake of the better than expected ADP numbers seen yesterday.  The usual caveats hold in terms of the dollar reaction, which can and often is reversed after the initial move.

As for the ECB meeting, there are low expectations for any fresh policy action in the wake of the measures announced last week.  That said, there will be two primary points of focus in the press conference. Firstly, any further signs of potential and also timing of any asset purchase program by the ECB, of which there had been some discussion up to now.  The second is the currency.  Whilst EURUSD is back to levels prevailing ahead of the last ECB meeting, it has under-performed on most of the crosses so it is not really a story of euro strength.  That said, the market will be sensitive to signs that the ECB is perhaps less comfortable with the single currency at these levels, given the measures recently announced.

The main overnight development is with the Aussie, which finds itself weaker on the back of comments from RBA governor Stevens, who commented that it remains over-valued on most measures. We pointed out a subtle change in tone from the RBA earlier in the week in their post meeting statement, so the fact that Stevens is following up on this is not that much of a surprise.  His comments are not as pointed as was the case towards the end of last year, but could well serve to cap Aussie strength going forward, for fear of more forthright comments ahead.

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