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US Dollar encountered one of its largest recent drops against the Euro on Wednesday, struck by the comparatively weaker Non-Manufacturing ISM report of January 2016 as the PMI registered a reading of 53.5 percent in January, 2.3 percentage points lower than the seasonally adjusted December reading of 55.8 percent. Attention now moves to the Non Farm Payroll number which is expected to show the number of jobs created at 190,000 for the month of January 2016, with the unemployment rate expected to be stable at 5% - a 7.5 year low. Weekly Jobless Claims and Challenger Layoffs report indicated a slowing labour market with a higher than expected number of jobless claims as well as planned layoffs, at 284,750 claims, and 75,114 planned layoffs respetively.
On Thursday, ECB President Mario Draghi contradicted an earlier warning from the Bundesbank President Jens Weidmann, in his speech at the Bundesbank's home in Frankfurt. A week ago Weidmann warned that, the ECB shouldn't overreact unnecessarily to the sharp fall in oil prices. In reply Draghi emphasized his initiative of launching additional stimulus to resolve the problem of ultra low inflation.
Mr. Draghi warned that central banks cannot act callous in the face of a series of shocks to commodity prices. "The risks of acting too late outweigh the risks of acting too early," Mr. Draghi said. Annual price inflation in the euro area was 0.4% in January, and has anguished far below the ECB's target of just below 2% for years.
Last month, Mr. Draghi hinted to launch additional stimulus of $1.7 trillion in March. Despite the dovish tone in Draghi’s speech , EURUSD leaped to the highest level since October at 1.1238 on Thursday, with the dollar index trading at 3.5 month lows.
Fig: EURUSD Daily Technical Chart
EURUSD rallied strongly since yesterday after breaking the month long consolidation range. It has already breached the 1.1200 level and was rejected near the significant resistance, 1.1260 level . The 100% expansion of the previous rally in EURUSD and the 61.8 retracement level of the strong selloff from 24th August ,2015 to 3rd December, 2015 merged at 1.1260 level which makes it very significant. It is expected to have a significant retracement of the current rally from the current levels, or after hitting the 1.1260 level. Conversely, if EURUSD breaches above 1.1260 it would open up the door towards 1.1470 the next significant resistance level.
Buy Digital Puts below 1.1180 all the way till the 1.1010 level . Buy Digital Calls above 1.1280 all the way till 1.1420.