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Asian Session – Euro holds on to gains after ECB disappointment; dollar attempts recovery

Global equities followed Europe’s lead to post sharp losses after the European Central Bank left markets disappointed with the set of measures announced yesterday at its policy meeting. The ECB cut its deposit rate by 0.1% to -0.3% as expected but many analysts were hoping for a bigger cut. The bond buying program was extended by 6 months to the end of March 2016 but the size of the monthly purchases was left unchanged, leaving traders unimpressed.

The euro saw its biggest one-day gain since 2009, rising by over 400 pips against the dollar. Yesterday’s reversal follows weeks of dovish comments by Mario Draghi and other ECB board members who had raised expectations very high that the ECB will deliver similar stimulus as in January when the quantitative easing program was first announced.

The single currency reached a high of 1.0980 dollars on Thursday but slipped lower to 1.0871 in late Asian trading today. It was also off highs against the pound and the yen at 0.7206 and 133.48 respectively. Better-than-expected factory orders data from Germany had little impact on the euro. Factory orders jumped by 1.8% in October versus estimates of 1.2%.

The dollar attempted to claw back some of yesterday’s losses after it got pounded by the euro. The greenback was up at 122.75 against the yen in late Asian trading, up from an earlier low of 122.29 yen. Fed Chair, Janet Yellen continued to guide the markets towards a possible rate hike on December 16. In her testimony to Congress on Thursday, Yellen said that the US is getting close to the point at which interest rates should be raised.

Yesterday’s rally in crude oil prices was short-lived as prices were back down again on Friday ahead of OPEC’s meeting later in the day. US oil futures were down at $41.11 in late Asian trading.

Coming up later in the day, US nonfarm payrolls will be watched closely as the last major data before the FOMC meeting. Nonfarm payrolls are forecast to rise by 200k in November while the unemployment rate is expected to stay unchanged at 5.0%.

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