EUR USD (1.2770) The better-than-expected US payrolls data failed to provide any sustainable optimism for the markets, not least because of the temporary nature of much of the new jobs. It nevertheless managed to dampen expectations that Fed would engage in QE3 any time soon. So the ECB’s balance sheet is still likely to grow faster than the Fed’s for the time being, which is seen as bad for the euro/dollar rate. Some in the market have begun to perceive the dollar strength as negative for the US exports, given the already weak demand in the eurozone and elsewhere, which may hurt jobs in the future. That said, the main euro-centric issues quickly displaced the non-farm payrolls in the headlines: Greek PSI; the prospect of a French downgrade; and the lack of eurozone growth. Even the EU summits lined up for the week evoked a sense of déja-vu with the only new input being Germany hinting at pan-eurozone measures to tackle youth unemployment. As in December 2011, the fate of bond auctions will determine the market clamour for the ECB to play the role of lender of last resort to governments. It is not surprising that the latest Reuters poll showed analysts expecting the euro to muddle through 2012 with a trading range of $1.27 to $1.30.
This morning the euro touched our risk potential mark (1.2675) before turning again. Below there, it would likely slide to 1.2490. The neutrality point remains as before at 1.3080.
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