ECB announcement today | Non-farm payrolls fade in significance

The Euro has always been resilient but indications by the president of the European Central Bank (ECB) at last month’s press conference that it will carry out measures aimed at fighting too-low inflation have had the effect of weakening the Single Currency in the interim. As pointed out yesterday (Euro zone easing is priced in), there is a real risk that the measures to be announced today will not match the expectations of the market and the Euro – dollar pair, in particular, will rally.

For this reason we have closed our short EURUSD position, for a small profit. Better to be safe than sorry. We will re-evaluate after the ECB meeting and associated press conference.

The pressures on the ECB governing council are enormous – much larger than exist in regard to the decisions made by the Federal Reserve in the USA, for example. This is as a result of the Federal nature of government stateside, where fiscal and monetary power is pooled in a manner which, if not always effective in economic terms, is at least more workable from the administrative point of view. The individual states of the US Union simply do not have the disproportionate power that certain countries in the Euro zone have when it comes to these matters, and this is even before it is considered that some EU member states, notably the UK, do not even belong to said Euro zone.

The end result for current Euro monetary policy, when Senor Draghi speaks, is likely to take something of the form of the old definition of a camel – a horse that was designed by a committee. This state of affairs is also responsible for the well-established tendency of the ECB to be long on rhetoric but to have great difficulty in actually delivering the measures it has indicated are needed from one month to the next.

Non farm payrolls report fades in significance

Tomorrow is Non Farm Payrolls day in the USA. Up to now this report, which ir released on the first Friday of every month, has been the most watched in all investment calendars. This time around the ECB announcement discussed above has taken centre stage, however.

Now there is reason to believe that the NFP report will not, in the future, have the same impact as previously. This is because, while formerly it was seen as a leading indicator of the progress of Quantitative Easing (QE) and therefore of US interest rate decisions, the Fed has now made it clear that (1) there is a transparent, stable schedule for the elimination of QE firmly in place; (2) it will take many more factors into account than payrolls when it comes to formulating policy from now on and (3) its attitude to interest rates under all conceivable scenarios is that they will be kept low for the foreseeable future.