Euro holds gains after post-Draghi rally

The euro held firm on Friday after the European Central Bank chief Mario Draghi stopped short of giving a strong signal of stimulus but it could struggle to extend gains if U.S. employment data later in the day re-energizes dollar bulls.

Investors were forced to trim bearish positions in the common currency overnight after the European Central Bank (ECB) disappointed some by not immediately expanding its stimulus program.

As a result, the euro jumped to $1.2457 from a two-year trough around $1.2279 on Thursday but has since steadied at $1.2375.

It climbed towards a six-year peak of 149.12 yen set on Nov. 20, rising as far as 148.95 on late Thursday before losing a bit of steam to last fetch 148.54 yen.

“Speculators who had bet on further stimulus bought back the euro after ECB, but not much has changed on the euro’s downtrend,” said chief trader at a Japanese brokerage.

Indeed, if there was one reason tempering a more aggressive squeeze in short euro positions, it would have been ECB President Mario Draghi’s promise to decide early next year whether to take further action to revive the Eurozone economy.

Importantly, Draghi also signalled that he would not allow opposition from Germany or anyone else to stop it.

For now though, all eyes will be on U.S. payrolls due at 1330 GMT. Analysts polled by Reuters expect employers added 230,000 new jobs to their payrolls last month and for the unemployment rate to remain unchanged at 5.8 percent.

Any upside surprise will further highlight the diverging outlook between the United States and Europe, giving the market a fresh excuse to buy the dollar against the euro.

The short-covering rally in the euro knocked the dollar index to 88.633 from a 5-1/2-year high of 89.122 on late Thursday.

The yen continued to weaken against the dollar on expectations that Prime Minister Shinzo Abe’s ruling coalition would win big in upcoming elections.

The Japanese currency hit a 7-1/2-year low of 120.255 yen on late Thursday and was still hovering above the key 120-level. The pair last quoted at 119.99 yen.

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