Consolidation was inevitably the dominant influence ahead of the US open on Friday with markets waiting for the pivotal US employment report. Following surge late on Thursday, EUR/USD maintained a firm tone and found support on a brief dip the 1.3650 level.
ECB member Nowotny stated that there was no need for immediate action on interest rates which again dampened any expectations of more aggressive policy action, at least in the short term, and helped underpin the Euro.
The Swiss franc was again an important focus following gains through the important 1.2280 level against the Euro on Thursday. EUR/CHF retreated further with lows at 1.2225 while USD/CHF dropped below the 0.8950 level. A higher than expected consumer prices release increased speculation that the National Bank could tolerate a stronger Swiss currency.
Markets were generally optimistic surrounding the US data with a suspicion that non-farm payrolls growth would exceed forecasts of around 180,000. In the event, these expectations were accurate with a headline increase of 203,000 for November following a slight downward revision to 200,000 for the previous month. More surprisingly, there was a further decline in the unemployment rate to 7.0% from 7.3% which was the lowest reading since the end of 2008.
EUR/USD dropped sharply following the release with a move to 1.3620, but quickly found fresh buying support and moved to highs just below 1.3700 in very volatile conditions. There was support on the EUR/JPY cross which broke above the important 140.0 level as USD/JPY moved to around 102.70 as US bond yields increased again. There was a sharp reversal in the Australian dollar with AUD/USD recovering from a brief slide to below 0.9000 to challenge resistance above 0.9100.
Subsequent US data was stronger than expected with the University of Michigan consumer confidence index rising to 82.5 for December from 75.1 which put it back at levels seen in July. The data releases overall should bolster confidence within the Federal Reserve and make it easier to justify a tapering of bond purchases at the December FOMC meeting.
Sterling gained some support from a higher than expected reading for inflation expectations which will increase pressure for the Bank of England to rein in the aggressive monetary policy. There was high volatility in GBP/USD with a 100-pip reversal from lows below 1.63 following the US payroll data.