FXstreet.com (San Francisco) - The EUR/USD collapsed on Thursday after ECB's movements on rate cuts and the 'open mind' about the negative deposit rates. Mario Draghi opened the door to further cuts and said the bank is 'technically ready' in case the eurozone conditions worsen. The EUR/USD recorded its first negative day in the last five sessions with 0.86% daily losses from opening price to the current 1.3065.
After falling around 180 pips from Thursday highs at 1.3217 to break down the 200 days MA at 1.3070, the EUR/USD found support at the lowest level since April 29 at 1.3035. then the pair traded sideways between 1.3055 and the mentioned 1.3070. Currently the pair is still slightly bullish according to the FXstreet.com trend index, Indicators such as The MACD, CCI and Momentum are pointing to the north while the Stochastic is neutral in the 1-day chart.
The ECB cut its refi rate by 25 bps to 0.50%. The central bank is "frustrated", in Draghi's word, regarding the private banks' toughness to lend more money. "Although Draghi reiterated that the ECB was technically prepared for a cut in the deposit rate, in the past he had warned about the potential negative consequences. Now he is saying has an open mind", commented Marc Chandler, analyst at Brown Brothers Harriman.
As Valeria Bednarik, FXstreet.com comments, the real fact is that the bank did not announce negative rates, and barely considered them as a possibility. "However, that was enough to set market mood. Moreover, it confirms the pair is trading range bound in the 1.30/1.32 area, as now approaches to the base."
However, with central banks meeting behind us, market is switching focus to Friday's US employment report and the EUR/USD short term future will depend on how the NFP's April figures will performance. "In terms of the EUR, 1.3220-40 is a massive resistance level, and right now the market has no appetite for holding EUR above here," comments Forex.com's analyst Kathleen Brooks. "We tend to think that the extent of the downside will be dependent on Friday's NFP."
The big Job's day
As noted earlier on the week, the FOMC meeting was a non-event and the ECB meeting was aggressive with its interest rate cut and the 'open mind' to the negative deposit rate. However, The EUR/USD remained moving inside its 1-month range between 1.2950 and 1.3200 with the Thursday's collapsed being contained at 1.3050.
Kathleen Brooks points that if euro fair price "was based on growth prospects alone surely EURUSD would be back at 1.20, however it's not." She believes that "a miss for NFP's tomorrow could see a reversal in the EUR back to the 1.3230 highs that have thwarted positive momentum this week, as QE4, 5, and 6 come back into view and weigh on the greenback." On the other side, "a stronger payrolls, could see the dollar rebound sharply, sending EURUSD flying headfirst down the southern highway."
The market consensus on NFP is about 145,000 new payrolls in April, well below the 2012 average of 180,000. Adam Button, ForexLive analyst, is bullish on NFP numbers. Thursday's "jobless claims number was upbeat and the Fed didn't seem overly concerned about employment" on Wednesday. Button says "If I had to choose a number, I'd say +180."
A payrolls number close to the magic 200k could see EURUSD fall below the 1.2970 level - the 200-days sma - which would be a very bearish development for this cross, opening the way for a move back to the 1.2745 lows form early April.
As summary, a NFP reading above expectations would be positive for the dollar while a below expectations number, or even a negative, would be positive for the EUR/USD. Among this line, "A payrolls number close to the magic 200k could see EURUSD fall below the 1.2970 level - the 200-days sma - which would be a very bearish development for this cross, opening the way for a move back to the 1.2745 lows form early April," states Brooks.
After recent economic data, "we are finally seeing some good news for the U.S. economy and this should keep the dollar supported on a day when the ECB not only cut interest rates but says they are open to easing again if necessary," points BK Asset Management's Kathy Lien. "Non-farm payrolls are scheduled for release tomorrow and jobless claims have been consistent with an uptick in job growth."