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Ahead of the upcoming US nonfarm jobs report, the FX markets continue to dislike the dollar owing to concerns over the health of US labour market and an overall positive backdrop for risk appetite. On the case of the latter, well this has been evident with global equity markets remaining near record levels, which has seen the commodity currencies and the more cyclical currencies outperform. Meanwhile the ongoing weakness in US labour market was highlighted once again by all major data releases last week, which means expectations are running low ahead of the publication of US nonfarm payrolls report later today.
Dollar remains on the back foot ahead of NFP
With demand for the dollar fading, this is keeping appetite strong for precious metals, and we have seen gold climb to near $5100 area. Pro-cyclical currencies like the Canadian and New Zealand dollars were racing ahead, too, as uncertainty around the future path of Fed policy is also weighing on sentiment towards the dollar. The dollar index was down for the fourth consecutive session, at the time of writing.
Yesterday’s release of US retail sales data didn’t help the dollar whatsoever given that both the headline and core retail sales measures missed expectations with prints of zero, respectively.
Despite the retail sales miss and a cooling labour market, other US macroeconomic indicators have been suggesting that growth is still holding up reasonably well. Still, markets are fully convinced that around two rate cuts are on the way. This should point to a softer dollar, although not a full-blown collapse given that US equity markets remain quite strong.
What to expect from the jobs report
The delayed NFP report is expected to show that 66,000 jobs were created last month, up from 50,000 in December. But could we see a miss, given the weak pre-NFP leading indicators we got last week? It is worth pointing out that some disappointment is already priced in, so don’t be shocked by the dollar’s reaction if it doesn’t fall as much as you’d normally expect on the back of a potentially softer number. By the same token, a small beat could amplify its potential upside reaction too, potentially boosting the USD/JPY pair. Meanwhile, the unemployment rate is seen unchanged at 4.4% while average hourly earnings are seen climbing by another 0.3% month-on-month.
Yen shows relative strength for a change
One FX pair that is starting to look interesting again is the USD/JPY, which has drifted lower with the yen finding support on the back of the newly empowered LDP government in Japan.
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The USD/JPY has already fallen for three days in a row, in what still arguably is a bullish trend. Therefore, we could see some dip-buying, particularly if the jobs report isn’t too disappointing. Still, we could see key resistance levels hold, so long as the jobs report is not super strong. Among resistance levels to watch, 154.50-155.00 now marks a pivotal zone. Break that and 155.50/5 would become the next obvious upside objective. On the downside, 153.00 is a short-term support level, but the trend line near 152.00 is a far more interesting level for the bulls to defend. Lose that and then 150.00 will come into focus next.
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