Following sharp Euro gains on Thursday, markets in general were looking for a phase of consolidation ahead of Friday’s pivotal US payrolls report.
Relative calm was jolted early in the European session by an announcement from the German Constitutional Court which has been considering the ECB’s planned bond-buying plan. By a 6-2 verdict the court ruled that the there were important reasons to believe that the plan exceeded the ECB’s mandate. The Court, however, decided to refer the complaint to the European Court of Justice, effectively ducking the issue. EUR/USD spiked lower to the 1.3550 area before finding support and reverting to the 1.3570 area.
The latest UK industrial production data was weaker than expected with a 0.4% increase for December from a revised 0.1% previously, maintaining a disappointing run of official industrial data. Sterling did spike lower following the release before recovering ground as the December trade deficit was lower than expected. GBP/USD retreated to 1.6300 lows before finding fresh buying interest.
Following Europe’s early spike, markets settled back again to wait for the US payrolls data. Normal uncertainty was compounded this time around by doubts surrounding the potential weather-related impact. EUR/USD held close to 1.3570 and USD/JPY stayed above 102 into the release.
The headline US employment data was weaker than expected with an increase in non-farm payrolls of 113,000 for January following a revised 75,000 gain the previous month. Details within the report were mixed as the unemployment rate fell to fresh five-year low of 6.6% while government jobs declined sharply.
In an initial response, the dollar weakened sharply with EUR/USD rising to a peak around 1.3640 as GBP/USD moved back above 1.6350 and USD/JPY dipped to lows just below 101.50. The dollar did regain some composure after initial selling pressure was absorbed and there was a EUR/USD retreat back to just below the 1.36 level. Dallas Fed President Fisher stated that the Fed would not be swayed by a single data point which helped provide some dollar relief in inevitably very choppy trading conditions, but US support remained fragile.