A barrage of data from the Euro-zone tonight, all of it bad, yet the euro stays resilient as market players remain more concerned about the possibility of a weaker US Non-Farm payroll report rather than the bleak state of EZ economy. European data was predictably dour as German unemployment hit a post war high, French unemployment exceeded 10% for the first time in 5 years and EZ business confidence hit lows not seen since 2003. The region is trapped in a vicious cycle of retrenching consumer demand ( German retail sales have been down for 3 consecutive years) as a result of skyrocketing unemployment which in turn generates more unemployment as businesses are unable to generate growth. At the beginning of the year Gerhard Schroeder instituted a new series of tax cuts designed to stimulate business investment, but that strategy will take a long time to produce a material benefit to the economy. In the meantime, hampered by a strong euro and escalating oil prices, the EZ economy continues to muddle through registering anemic rates of growth.
None of these factors seemed to have an effect the EUR/USD however, with the pair bouncing back above 1.2950 as the market focuses far more on the upcoming US Non-Farm Payroll numbers. Today's weekly jobless claims - which have been running far above February's rates all month long - should provide a strong clue to the quality of the release. Most recently market's expectations have been pared, as high oil prices in March hurt consumer sentiment and likely tempered employer enthusiasm for new hires as well. We do not expect the NFP report to exceed significantly market expectations of 220K new jobs and would in fact not be surprised if it printed lower.