Forex Europe Update - USD

The USD has traded in a 1.3166-1.3182 range against the EUR and a 115.55-116.92 range against the JPY as stabilising equity markets have helped push the lower yielding currencies JPY and CHF weaker again.

In addition the renewed calm in the equity markets makes it almost certain that the ECB will be able to raise interest rates today without causing investors to fret that the central bank is making a policy mistake.

Thus the EUR has managed to gain ground again against the USD.

With the ECB today and payrolls tomorrow also likely to be USD negative (we expect only 50K against 95K consensus) the market is likely to stick to its trading patterns that prevailed before last week's equity slump with carry traders pressuring the JPY and CHF and the EUR staying supported against the USD as the ECB keeps raising interest rates without hurting investor sentiment.

But we remain cautious about the renewed risks of risk aversion coming back to the fore and therefore stay neutral on EURUSD at current levels.

Ahead today, initial jobless claims are expected to remain elevated at 330k (consensus: 331k, after 338k). This will keep risks to the downside for Friday's payroll.