Daily Report: EUR/USD Firm ahead of Non-Farm Payroll, Strong Numbers Anticipated

Dollar remains soft against Euro as market's focus are turning employment data from US. Markets are expecting Non-farm payroll to show 183k expansion in February with unemployment rate edged back up to 9.1%. Leading indicators to NFP were generally positive. Employment component of both ISM indices continued recent up trend with that for manufacturing index rose to 64.5 and that for non-manufacturing rose to 55.6 in February. Both were at multi-year high readings. Four week moving average of initial jobless claims dropped to 388.5k, lowest since July 2008 and was the first time it's below 400k level since then. ADP private job data also beat expectation by rising 217k in February. An upside surprise in today's NFP number is possible. US conference board consumer confidence also rose to three year high of 70.4 in February which suggests lower unemployment rate ahead.

A solid Non-Farm Payroll report today is anticipated. But how would dollar respond? Judging from recent developments, it will be hard for the greenback to have sustainable rebound against Euro and to a lesser extent sterling, even in case of a strong NFP number today. Rate expectations would likely continue to support both currencies. Strong employment data would also boost risk sentiments and would probably send S&P 500 back towards recent high of 1344 and that would likely give support to Aussie and Loonie. Meanwhile, retreat in risk aversion will likely give some pressure to yen and swissy instead. Hence, in case of upside surprise in NFP, we'd advise to long dollar against yen and swissy, but avoid buying dollar against Euro, Sterling, Aussie and Loonie.

Euro remain firm across the board on expectation of rate hike from ECB in April after Trichet's hawkish comments and use of the magical word "vigilance" in yesterday's press conference. Before the ECB meeting, most economists expect ECB to hold rates until Q4 of this year. But such expectation was completely abandoned after Trichet's comments. Accord to a Reuters' poll, 39 out of 49 analysts now expect ECB to raise key interest rate by 25bps from historical low of 1.00% to 1.25% in next meeting on April 7. This, when happens, will be the first tightening since July 2008. The expectations will continue to support the common currency versus dollar. However, whole Euro will likely extend rebound against Sterling and Swissy, we'd be cautious on another turn in EUR/GBP and EUR/CHF as markets focus would turn to speculation on hikes from BoE and, to a lesser extend SNB, sooner or later.