EUR/USD Looks Set For Further Advances Ahead Of Non-Farm Payrolls

by: FXstreet (Barcelona)- The EUR/USD finished the day with impressive gains, climbing 147 pips and posting its highest close since late February at 1.3239. There were a number of catalysts analysts were focusing on as a reason for the move, but the most talked about was the ECB Rate Decision, and the comments which followed during President Draghi's press conference.

According to analysts at TD Securities, "the ECB today left all interest rates and policies unchanged and provided nothing really new in the press conference. The decision was "consensual" that the changes in the data over the last month did not necessitate any immediate action. Draghi did continue to say they had a "full" and "rich" discussion of potential tools, principally focused on trying to address funding issues, including ABS, LTROs, collateral, credit claims, and negative deposit rates, which he continued to say the ECB is "technically ready for," as well as further forms of forward guidance."

Some analysts were also pointing to a few different factors (other than just the ECB news) which may have helped weaken the greenback. In fact, the US Dollar suffered steep declines across the board, with the DXY closing down 108 pips at 81.52.

According to analysts at NAB Global, "A weaker US dollar is the most obvious story overnight with the USD down against all the G-10 currencies. The explanation for these moves comes from at least three sources. First, the risk that US Non-farm Payrolls will be weak. This would mean likely postponement of Fed QE tapering. Second, inaction from the ECB and Bank of England. While this was expected, President Mario Draghi was not as dovish as the market had hoped in his press conference, pointing to some indications of improved sentiment in Europe and saying that the changes economic indicators since the last meeting were not "sufficient to grant action now". Third, concerns about how successful Abeconomics will be, the\ PM's blunt 'third arrow' announced on Wednesday underwhelming."

On a final note, some analysts are quick to point out the Non Farm Payroll numbers due out of the US tomorrow at 12:30GMT. Given the speculation of the Fed "tapering" QE purchases, they note the greenback could be quick to retrace losses depending on the print.

"The U.S. dollar tumbled lower against its major counterparts on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) tagging a fresh monthly low of 10,517, but the greenback may regain its footing over the next 24-hours of trading as Non-Farm Payrolls are expected to increase another 165K in May. Although the jobless rate is expected to hold steady at an annualized 7.5%, we may see a rise in the unemployment print should discouraged workers return to the labor force, and the dollar may face a choppy reaction should we see a mixed batch of data," noted David Song, Currency Analyst at DailyFX

Song went on to add, "nevertheless, currency traders may turn increasingly bullish on the USD ahead of the next FOMC meeting on June 19as we see a growing discussion to taper the asset-purchase program, and the updated assessment from the central bank may further dampen expectations for additional monetary support should the Fed raise its outlook for growth and inflation."

From a technical perspective, the close above the 1.3200 resistance level is impressive and this level should now act as firm support on any pullback. Note this had been the top of the recent trading range and had limited advances on numerous occasions since late February. Trend following indicators such as short term moving averages also continue to paint a bullish picture, with price continuing to consolidate above the upward sloping 9, 20, and 50 dma's. On a final note, the RSI (14) completed a bull shift today, closing above 60 and establishing the bullish zone between 40 and 80 for the first time since late February. This is an impressive development which should not be overlooked.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.