Spotlight on ECB, BoE and Friday’s NFP Data

US jobs report to remain at the centre stage

On Wednesday, the US Dollar rose against most of its major counterparts after private-sector jobs data supported the optimistic view that the ongoing recovery in the US labor market seems on track to continue. According to the ADP report, released on Wednesday, private-sector employers added 238K jobs in December, the most number of jobs since November 2012, surpassing consensus forecast of 199K and  its prior estimate of 215K for November. November’s figure was revised up to show a gain of 229K jobs.

Also on Wednesday, the Federal Reserve released the minutes of its two-day policy meeting on Dec. 17-18, when the central bank decided to taper the pace of its massive monetary stimulus of $85 billion monthly bond-purchase program by $10 billion. The minutes showed that majority of the FOMC members voted to trim the pace of central bank’s bond purchase program. The minutes also revealed that most FOMC members wanted to emphasis that further tapering was “not on a preset course” and would be dependent on the incoming economic data, the labor market conditions and inflation expectations.

Market participants view ADP report as a guidance to the US Labor Department’s nonfarm payrolls data, scheduled for release on Friday and is expected to show an addition of 194K new jobs in December as compared to an addition of 203K jobs in November. The improving data on private-sector jobs has raised market expectations that the official monthly jobs report could outpace consensus estimates. Moreover, since the Federal Reserve has tied the fate of its monetary stimulus program on economic data and labor market conditions, a healthy employment figure for December could possibly trigger renewed strength for the US Dollar, lead by expectation of the Fed considering to further trim the pace of bond purchases in coming months.

Thursday’s focal point on ECB and BoE

Investors now turn their attention to the monetary policy decision announcement by the European Central Bank (ECB) and the Bank of England (BoE) on Thursday.

Ahead of ECB’s first monetary policy meeting of the year, flash Euro-zone CPI number, released on Tuesday, showed inflation slowing in December to 0.8% from 0.9% recorded in November. Weaker inflation figure has lead to increased prospects of ECB announcing additional accommodative measure in the near-future. Having said that, market participants are still not expecting any policy action by the ECB, at least from this month’s meeting. However, investors will be focusing on ECB President, Mario Draghi’s press conference, schedule later on Thursday after the monetary policy decision announcement. Any hints towards the likelihood of expanding stimulus at future meetings could possibly drag the Euro lower sharply.

The BoE is also scheduled to announce its monetary policy decision on Thursday, which off-late has proved to have a very little or no impact on the markets. BoE is unlikely to surprise and is expected to leave its key interest rates and asset purchase program, that currently stands at 375 billion pounds, unchanged. However, considering the recent drop in inflation and unemployment rate, the central bank could release a statement laying the road map for its future monetary policy stance. A status-quo monetary policy would have little market reaction.

EURUSD – The pair seems to find some intermediate support around the 100-day SMA region. This is closely followed by a strong support near 1.3530 – 1.3520 zone marked by 61.8%  Fibonacci Retracement Level of the pair’s up-move from Nov. lows to Dec. high and the lower trend line support of an ascending trend channel formation on daily chart. A decisive drop below 1.3500 region could provide additional room for further depreciation of the pair towards testing the 200-day SMA support, currently near 1.3370 – 1.3350 zone.

On the upside, 1.3660 area (38.2% retracement level), followed by 1.3700 round figure mark, seems to act as immediate resistance. Strength above 1.3700 mark could lift the pair back towards 1.3850 – 1.3880 multiple resistance zone, comprising of a long-term descending trend line extending from 2008 highs through 2011 high, 50% Fibonacci Retracement Level of 2008 to 2010 big downfall and the upper trend line resistance of a possibly rising wedge formation on weekly chart.

GBPUSD – The pair tested the intermediate support near 1.6320 – 1.6340 zone and rebounded back towards 1.6480 – 1.6500 resistance zone. A decisive move above 1.6500 resistance could lead to further appreciation towards 1.6600 psychological round figure mark. However, a drop back below 1.6400 level would probably increase the possibilities of extension of the pair’s last week’s corrective pull-back towards 1.6200 level.