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USD: The market is looking for a 163k gain in headline payrolls, with the unemployment rate holding at 7.5%.

After yesterday’s sharp dollar sell-off, the market is more vulnerable to a short squeeze higher on the dollar if we do see a stronger reading, whilst a weak number could struggle to bring much fresh dollar weakness.

See how to trade the Non-Farm Payrolls with EUR/USD.

CNY:  The monthly data onslaught is seen early on Monday, with prices, retail sales, industrial production and trade. Aussie and yen will be sensitive to further fall in momentum from China.

CAD: The labour market data for Canada released the same time as for the US.   Rate is seen steady at 7.2%, with employment rising 15k. CAD has been vulnerable this week, with weaker tone to other commodity currencies not helping.

Idea of the Day

The deal with the dollar is that the data has won the fight. This does not fundamentally explain the extent of yesterday’s decline, but markets are inherently about fear, greed, psychology and positioning.

During May, the dollar was strengthening on expectations of a Fed ‘tapering’ of asset purchases, based on the tone of comments from officials. Meanwhile, data was mostly falling short of expectations.   This week we’ve seen manufacturing PMI fall below 50, now at the lowest level for four years, with ADP data falling modestly short of expectations. Still, it’s all about the employment report, as this is the area of the economy that has lagged behind (employment still 1.9% below 2008 peak).

The feeling is that even if today’s data is stronger than expected, June would be too early for the Fed to pull back from the current pace of quantitative easing.   The market is very short dollars down here and vulnerable to a squeeze higher if we do see headline payrolls above 180k.

Latest FX News

JPY:   The yen lead the charge against the dollar yesterday afternoon and again overnight, briefly pushing below the 96.00 level in Asia trade.   Abenomics has lost its shine after Abe’s speech earlier this week, which disappointed with the intended pace of structural reforms.

AUD:  The Aussie has been buffeted by the dollar retracement but is not inclined to lead the way to the upside. A new low for the year was see yesterday (0.9435), with AUDUSD currently struggling to hold above the 0.95 level ahead of US jobs numbers.

USD:  The dollar was dumped in a big way Thursday, down more than 1% on the dollar index.   There was not a specific reason for the decline, more a sense of nervousness that has crept into the market in recent days, as it has corrected the disconnect between what the data has been doing (broadly weaker vs. expectations) and the more hawkish tone from Fed officials in recent weeks.