Jobs Data Eyed as ECB Takes Pressure off the Fed

European indices are expected to open around 1% lower on Friday, extending Thursday’s strong decline after the European Central Bank failed miserably to meet the markets easing expect that policy makers had spent weeks building up.

While there were those that doubted whether the ECB could possibly live up to the significant expectations of the market, not many could have anticipated that it fall so far short. The market was prepared for bold action to tackle a real inflation problem in the euro area and the central bank showed it is not up to the task.

On a positive note, the inaction from the ECB has made the Federal Reserve’s decision a little easier when it means in a couple of weeks. Had the markets expectations been met or exceeded, as has been the tendency of the ECB until now, the euro could have been trading near parity against the dollar, something we’re now unlikely to see for some time, if at all.

That could have created quite the dilemma for Federal Reserve officials given how the dollar’s strength over the last year has hampered the recovery. Manufacturers have been hit particularly hard by the dollar’s appreciation, as alluded to by Fed Chair Janet Yellen during yesterday’s testimony when she claimed that weak exports had subtracted around 0.5% from annual GDP on average over the last three quarters. Had the euro now been trading near parity, policy makers may have been tempted to hold off on hiking rates for fear of causing too much damage as the dollar could have strengthened further. Now it seems there’s much more room for manoeuvre.

With that in mind, today’s U.S. jobs report could be key, as Fed officials look for further evidence that the economy is well placed to absorb a rate hike. Last month’s report was exceptional and far beyond what is required to warrant a hike. Unless we see a substantial downward revision to the October numbers, I find it difficult to envisage a report today that could make Fed officials question the decision to hike this month. While the markets would probably respond very negatively to a non-farm payrolls number of around 100,000, I don’t think even this would be enough to deter Fed officials so the bar really is very low.

Today’s semi-annual OPEC meeting is likely to attract more attention than normal following reports in recent weeks that its most influential member, Saudi Arabia, is finally willing to discuss ways of stabilising oil prices following their staggering decline over the last year. Previously, the Saudi’s have preferred to tolerate the low prices in order to drive higher cost producers out of the market and retain market share but unfortunately, these producers have proved more resilient than it anticipated. With oil containers now reaching capacity which could spark another drop in oil back to around the low to mid-20’s, it would appear they are willing to begin discussions with OPEC and non-OPEC members in order to prevent such a move. We should learn more about these reported plans throughout the day so oil prices may be quite volatile.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.