EUR/USD: Draghi Stands Pat, Euro Shoots Higher

 | Mar 07, 2014 06:11AM ET

The euro posted sharp gains on Thursday, as EUR/USD tacked on about 130 points, to close at 1.3870. The pair has settled down in Friday trade. The euro reacted positively as the ECB refrained from lower rates or taking any other action. In the US, Unemployment Claims dropped sharply. In Friday news, German data has looked strong this week, and the markets are hoping that Industrial Production follows suit. It's a busy day in the US, with three key events on the schedule - Nonfarm Payrolls, the Unemployment Rate and Trade Balance.

Mario Draghi and his crew at the ECB helped the euro shoot up on Thursday, but this time it was due to a lack of action by the central bank, rather than a change in monetary policy or any dramatic comments by Draghi. There had been speculation that the ECB might lower deposit rates into negative territory or even commence a mini-QE scheme. In the end, the Bank held the course, with Draghi reiterating his well-worn script that the ECB's high degree of accommodative monetary policy would continue for as long as needed. He also noted that the Eurozone economy was recovering at a moderate pace, and shrugged concerns about inflation levels well below the ECB's target of 2%. Draghi may be able to point to encouraging data out of Germany to bolster his case that the region is headed in the right direction, but the data from other major economies, such as France and Italy, raise questions about the health of the Eurozone.

In the US, all eyes are on Nonfarm Payrolls, which will be released together with the Unemployment Rate. US employment numbers have been a mix so far this week, as ADP Nonfarm Payrolls was well below the estimate, but Unemployment Claims dropped to its lowest level since December. Even if today's numbers aren't great, we can expect the Fed to take the scissors and trim QE at its meeting next week.  New York Fed President William Dudley said as much on Thursday when he stated that the threshold to alter the Fed's program to wind up QE was "pretty high". In other words, short of a serious economic downturn in the US economy, we can expect the QE tapers to continue.

EUR/USD for Friday, March 7, 2014