ECB President Mario Draghi surprised many a pundit and participant by not delivering on the ultra dovish hype that he, perhaps unintentionally, generated. Expectations were for a larger than the delivered 10bps cut to the deposit rate (LOWERED to -0.30%) and for an expansion to the current QE program (NO INCREASE). Draghi's press conference did, once again, engender the kind of volatility that one has come to expect but when all was said and done Euro bears were clearly disappointed. This resulted in a short squeeze that saw the common currency surging by over 3% against most of the majors as traders rushed to cover their positions. EURUSD traded in a range that saw it go from a pre-announcement low of 1.0538 to a post announcement session high of 1.0980 (442 pip range).
With tomorrow's Non Farm Payroll report looming it would appear that the 1.10 level is quite crucial to the near term direction of this pair (see Charts). FED Chair Yellen and other members have been quite vocal recently about the need to begin the process of normalizing monetary policy fairly soon. Yellen has gone so far as to suggest that 100k jobs added per month would be sufficient to cover ALL new entrants to the job market thus providing the markets with some insight into how FOMC views the current state of the US economy. Another blockbuster report (>200k) should ratchet up the odds, which were already around 75%, drastically to the point where a December start to the hiking process becomes almost a certainty. The quandary for many is that the FED appears ready to embark on a tightening policy path while the ECB, though much less dovish than expected, and the rest of the major Central Banker's are still stuck in varying stages of an easing cycle. This divergence in monetary policies should embolden dollar bulls over the mid term horizon but the overbought state of the US unit, especially vs. the Euro, might provide a bit of respite for bears in the near term.