Payrolls Optimism Building, ECB Watching

Draghi lit a fire under the euro but risk trades also caught fire on optimism about Friday's non-farm payrolls report. The Australian dollar was the best performer on the day after upbeat retail sales while the yen lagged. The China services PMI and RBA quarterly report are out later. Existing Premium trades include EURUSD, GBPUSD, USDCAD, AUDJPY and gold. Charts & trades are seen in the latest Premium Insights.

Draghi left the focus on data in a press conference that had something for everyone. He was surprisingly confident in the path of inflation and growth but also said the ECB was waiting for more information before acting. That puts the focus squarely on incoming data and will mean EUR/USD hangs on every release in the month ahead.

The broader story was the boost in yen crosses and stock markets as optimism returned. Everywhere we looked, there were upbeat prognostications on Friday's non-farm payrolls report. Much of that is built on solid ADP and ISM non-manufacturing data with the remainder on a recovery from weather effects.

With the moves, it's likely the market is expecting NFP near 200K rather than the 180K consensus and another decline in unemployment is also possible. The main bullish thesis is on higher revisions to the extremely soft December print.

Emerging market concern has died rapidly died down. On Thursday the lira was the top performer, gaining 1.3% with other beat up currencies like BRL, ZAR and RUB not far behind. On the year, the lira has trimmed its loses to just 2.8%.

One of the reasons EM has been able to recover is the lack of any negative news out of China this week because of holidays but that could change with the services PMI at 0145 GMT. This indicator is generally ignored but with nerves frayed, a decline from the 50.9 reading in Dec could have an outsized effect.

The other release on the schedule to watch is at 0030 GMT when the RBA presents its quarterly statement on monetary policy. Look for comments on the Australian dollar. Currency commentary was absent from the statement and there is chatter they could endorse AUD near the current levels. That will mark a change since officials have been repeatedly talking AUD down and the market could buy AUD/USD in response.