Optimism about the US economy saw the US dollar and US stocks surge yesterday with the Dow and S&P500 closing at new records, while commodity prices continue to fall through the floor. The pound and the euro slid sharply as both respective central banks left policy unchanged, while ECB President Mario Draghi came out swinging after this week’s revelations of alleged discord in the ranks. If there were divisions on the ECB governing council they were well disguised yesterday as ECB President Mario Draghi wrong footed the markets once again. Concerns about the ECB President’s free-styling ways may have been high on the agenda in the lead-up to the press conference, but there appeared to be no doubt who was in charge by the time he had finished speaking. Mr Draghi went to great length to insist that there was no north/south divide on the governing council, merely occasional disagreements over the direction of policy. The opening statement could almost be compared to circling the wagons as the reference to the size of the balance sheet was approved unanimously in the opening paragraphs, with the expectation that it would move towards the €3trn mark that we saw in 2012, over the next two years, as the ECB announced it would soon embark on its purchase of ABS’s. If there had been any disquiet about dissension on the council it would appear that yesterday’s press conference has dispelled them for now, with Draghi firmly in charge. It was also made clear that further measures were being prepared to be used as needed, within the ECB’s mandate, if the inflation outlook were to worsen. Given the continued decline in oil prices this seems likely, raising the question as to whether the ECB will look past the current weakness in subsequent assessments of the economy. The big question remains as to whether the likelihood of full blown QE has become more or less likely, and I would suggest that nothing much has changed, and that it remains unlikely, unless Germany has a massive change of heart. Another question remains about whether the ECB’s actions will be enough given Germany’s reluctance to use its extra flexibility to significantly boost public investment. This was borne out by German finance minister Schaeuble statement that Germany would be balancing its budget beyond 2015, despite calls by Eurogroup head Dijsselbloem for Germany to use its extra flexibility to do a lot more public investment. In the wake of last week’s Federal Reserve decision to end its asset purchase program and subsequent positive statement, hopes are high that the US recovery matches the change in tone of the aforementioned statement. Some of the data this week certainly speaks to a continued improvement in the labour market, particularly with respect to the internals of the two October ISM manufacturing and services reports earlier this week. In both cases the October reports showed an increase in the employment components as well as fairly robust new orders, though recent US trade numbers suggested fairly weak export demand. The only worry concerns the decline in the prices paid components which fell more than expected, suggesting that falling prices could well cause the Fed to miss its inflation target. Optimism about the US recovery has also been helped by recent employment data with weekly jobless claims hitting a 14 year low of 266k last month, while Wednesday’s ADP report was also fairly positive coming in better than expected with an upward revision to the September number as well, though the market seemed to overlook the 60k downward revision to August. Despite this recent data would appear to suggest that markets could well be underestimating this month’s non-farm payrolls number. Expectations are for a number of 232k slightly below September’s better than expected number of 248k, but it wouldn’t be a surprise to see a number well above 250k, towards 300k. While markets may be underestimating today’s payrolls number doubts do remain about the resilience of the recovery given the continued low participation rate of 62.7%. The unemployment rate is expected to remain unchanged at 5.9%. EURUSD – the euro has made another 2 year low in the last 24 hours as it continues to edge towards 1.2000. The break below 1.2400 raises the prospect of a renewed decline towards 1.2040 and the lows in 2012. With short interest at its highest levels since 2012 the risk of a short squeeze towards the 1.2570 area remains. Any rebound would need to overcome the 1.2570 area to argue for a move back towards 1.2800, while a move below 1.2400 argues for 1.2000. GBPUSD – having seen the pound drop below 1.5875 the risk for further losses has risen with the prospect of a fall towards 1.5720 increasing. Any rebounds now look set to find resistance at 1.6070 initially. EURGBP – we saw another test of the 0.7800 level yesterday and while this level holds we could well get a rebound towards the 0.7900 level. We need to get through the 0.7940 level to stabilise. A break below the 2012 lows at 0.7754 is the main obstacle to further declines towards 0.7690, the October 2008 lows. USDJPY – having seen a push up to 115.52 and a quick retreat we need to close above 115.00 to suggest further gains towards 120.00. A failure to consolidate here could well see a fall back towards 112.60 in the short term. Only a break back below 110.00 would have the potential to derail a higher US dollar scenario, towards 120.00 CMC Markets is an execution only provider. 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