Currency markets were rather flat in anticipation for the February non-farm payroll report, though the EUR maintained its strong gains following the surprise statement from the ECB yesterday, in which the bank telegraphed an interest rate increase as early as April.

The news helps to solidify the Euro's position against the USD in terms of interest rate yield differentials.

The EUR/USD was setting up an an important level of resistance at the 1.3970 area.

Anticipation for the monthly US jobs report is for a strong reading after other macro indicators like the ISM manufacturing (61.4) and non-manufacturing indexes (59.7) came in strong, and their employment sub-gauges rose. Jobless claims yesterday fell to 368K, the lowest level since May 2008.

In testimony this week, Fed Chairman Bernanke reiterated the point the Fed has been making for several months now,  - despite an economy in which economic growth is picking up, the Fed needs to see a sustained period of stronger job growth before it is confident enough to start talking about tightening its monetary policy. That means that the economy would have to post several months of significant job increases (150K+). The market will be forward looking in this development and so a strong February report could be the beginning of a shift in how the market prices in the Fed's future moves.

Expectations are as high as 200K for today's data, stronger than the consensus forecast coming into the week. The USD may be hard pressed to gain against a surging Euro, and any gains following the NFP may be temporary as they would just make it cheaper to buy the Euro on a dip. However, stronger macro data has already helped lift the USD against the JPY and an improving labor market will only extend its current rally there. The higher expectations can backfire on the USD as well, as a smaller figure than 200K can now underwhelm markets.

Still, until we have the Fed communicate the message that it is thinking about tightening policy, the USD will be at a disadvantage against most other currencies, especially if strong employment data sets off more risk appetite - with global equities and commodities climbing. That would help higher yielders at the expense of the USD and the JPY - which will be used as a funding currency for carry trade.

It's hard to be a USD bull in this environment, but the thought of 200K jobs having been created in February, will make people consider the fact that perhaps the US economy can finally start to create enough jobs that the central bank can begin to plot an exit strategy to its loose monetary stance.