It's alive! The euro is alive and finally it has awoken, with the EUR/USD jumping above the $1.3100 level. Mario Draghi fueled the pair as he said that a gradual recovery in the eurozone will start in the second half of 2013.
The EUR/USD advanced in the American session moving off recent sub-$1.3000 levels to reach fresh March highs at $1.3120. Currently the pair is trading in consolidation mode between $1.3100 and $1.3110.
Later on in the day, the Federal Reserve published the stress test results showing that just one out of the 18 largest banks failed the Fed's stress test results. Ally Financial was the exception as the only bank which missed targets. According to the Fed, the 17 largest banks have sufficient capital to pass a severe downturn. The Fed's "Adverse" Scenario contemplates the DJIA plunging to 7,221.7 in Q4 2013 and then soaring to 15,294.9 in Q4 2015.
All of this happened just ahead of the U.S. employment report and the so-called NonFarm payrolls. So what's ahead for the EUR/USD after the ECB? Friday's U.S. jobs report should provide some direction for FX markets heading into next week.
Earlier in the day, comments from Draghi alongside better-than-expected U.S. jobless claims helped to boost the EUR/USD which rose above $1.3100 for first time in a week. The ECB President Mario Draghi said that even though the decision was not unanimous, the ECB never precommits. Draghi also sounded optimistic by saying the economy will gradually recover and played down the Italian elections effects on the eurozone.
However, the ECB has downgraded growth forecast to a range of -0.9% to -0.1% with the CPI between 1.2% & 2.0% in 2013.
The Jobs Friday ahead
Friday's calendar in the euro area would only offer the German Industrial Production as its most significant release, ahead of the Non-farm Payrolls and the jobless rate in the U.S. economy, expected to increase a tad by 160K in February, and to remain at 7.9% in the same period, respectively.
"As the week has progressed, there has been some improvement in market sentiment, helping to support gains in U.S. and European equities and many foreign currencies", says Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank. "Should the U.S. jobs report show a solid gain [Friday] the commodity and emerging currencies could rise further, though we are more cautious on prospects for the euro, yen and pound".
With the EUR/USD having the biggest rally since January and reaching the highest level since February 28th at $1.3120, Friday could be a session with high volatility fueled by risk appetite. If NFP beats estimates or even it's in line of expectations, the overall sentiment regarding the warming up in the U.S. economic engines could spur gains in stocks and risky currencies.
But on the other hand, Christopher Vecchio, Currency Analyst at DailyFX says that the EUR/USD rally could be short-lived, especially if tomorrow's (Friday) U.S. Nonfarm Payrolls report for February lives up to the hype (+170K expected). "The growing divergence between the eurozone and U.S. economies will be too apparent to keep the EUR/USD bid on President Draghi's 'hopes' for an economic recovery, despite no new policies on either the fiscal or monetary side that would indicate otherwise", he comments.